Matrix Service Co (MTRX) 2017 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Matrix Service Company sets date to discuss results for the second quarter ended December 31, 2016, conference call. (Operator Instructions) As a reminder, today's program may be recorded.

I would now like to introduce your host for today's program, Mr. Kevin Cavanah, Chief Financial Officer. Please go ahead.

Thank you and good morning, everybody.

If you're joining us today via webcast, you can access a slide deck we've prepared that goes along with this presentation. As we go through this presentation John and I may be referring to certain slides and we'll just let you know before we start that section.

So now I would 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, 2016, 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.

Thanks, Kevin. Good morning, everyone, and thank you for joining us.

I'll turn your attention to our first slide in the deck which is about our safety moment. Recently I had an opportunity to participate with executives from TransCanada on our project Safety Stand Down at our job site in Napanee, Ontario, to congratulate the site team on its excellent calendar 2016 safety performance and to reaffirm both companies' commitment to a safe work environment.

Matrix's Project Safety Manager, Gary Maher, opened our meeting with a safety moment about distracted driving and I wanted to share that message with you today. In our warehouse space with more than 650 people, Gary asked each of us to consider whether we had ever sent a text message while driving. I'd like each of you to consider that same question. Gary showed a video produced by AT&T a few years back called The Last Text. If you have not seen it, I would encourage you to search for it. It tells true stories about people who, like all of us, have sent or received a quick text while driving and in a split second put into motion an event that changed lives forever.

It's clear that when you're driving texting is a dangerous practice. But have you ever thought about a text you may have sent to someone you knew was driving? Think about that for a minute. If you have, you've put them in harm's way. Next time, please think before texting someone, whether you're behind the wheel or they are. I shared this video with my two children and I encourage you to find that video and share it with your family and friends as well.

Moving on to our discussion about our second-quarter results, I'd ask you to flip to the slide Commodity Pricing Compared to Backlog. I'd like to begin with a macro perspective of conditions that drive our ability to sustain growth and bottom-line performance.

As a general statement, industrial contractors are the last to feel the impact of changes in domestic and global economic conditions, significant world events, and commodity pricing. This is true regardless of whether these events are negative or positive to our markets.

For example, a few years ago our performance in the mining and mineral business was strong, even as copper and steel prices began to decline. Conversely, President Trump's recent executive order to reopen the permitting in the Keystone XL pipeline was positive, but it will be some time before that translates into new project awards for industrial contractors. The market variability represented by these examples demonstrate the peaks and troughs in the project awards cycle that have to be bridged with backlog levels that allow contractors to weather the downturns in customer spending.

Even as the market variables turned negative in early calendar 2014, Matrix continued to build backlog. As a result, 18 months ago Matrix was sitting on a record backlog of $1.4 billion. The strength of this backlog, our strategic focus and financial strength have given us the ability to weather the trough created by these challenging market conditions.

However, the trough has been extended due to slower than expected improvements in commodity pricing, the uncertainty created during the recent US presidential election cycle, and regulatory issues such as FERC leadership, pipeline approvals and, specific to us, California's Senate Bill 54, all of which have delayed customer clarity and confidence in the future.

While this uncertainty caused by market variability is impacting our ability to forecast the timing of capital project awards and customer spending patterns, it no way minimizes the strength of our markets and our ability to continue our strategic growth. Because of the diversification of our business portfolio we maintain a fundamental base load of work opportunities in many of our segments.

A lot of our ability to significantly rebuild the backlog is directly related to our customers' confidence in improving business conditions. The timing of awards, the spending on maintenance activities, and the start of backlogged projects have and continues to impact our revenue volume, absorption of overheads and bottom-line results.

As it relates to the absorption of overheads, contracts have to balance the need to maintain a high quality infrastructure to meet the current and future demands of our customers versus the near-term impact these overheads might have on the bottom line.

While times such as these certainly test us and can negatively impact short-term results, we must remain focused on our long-term strategic objectives. I'll discuss those objectives and our project pipeline in a few minutes, but I'd now like to turn the call back over to Kevin to discuss our second-quarter results.

Thank you, John.

You can view a summary of our Q2 results in the slide deck.

Consolidated revenue for the quarter was $313 million, which compares to $324 million in the prior year.

On a segment basis, revenue increased in the electrical infrastructure and storage solutions segments, driven by continued work on the Napanee generating station project in electrical and the Dakota Access pipeline project in storage. The combined increases from these two large projects were offset by decreases in the industrial and oil gas and chemical segments, both of which have continued to be impacted by low customer spending caused by delays in project awards and starts, as well as lower levels of maintenance spending.

Consolidated gross profit was $28 million in the quarter compared to $30 million in the same period last year. Reported gross profit margins declined to 9% in the current quarter versus 9.3% in the same period in the prior year. The most impact to strong overall direct margins was the under-recovery of construction overhead costs that resulted from lower than expected revenue volumes.

SG&A expenses came in just under $20 million in the quarter as the Company continues to manage overhead spending. SG&A also included approximately $700,000 of acquisition- and integration-related expenses for Houston Interests.

The tax rate for the quarter was just under 32%, in line with the tax rate of the second quarter a year ago, but better than our effective tax rate guidance of 36%. We expect our effective tax rate to be around 36% for the balance of the year.

For the three-month period ended December 31, 2016, net income and fully diluted earnings per share were $5.3 million and $0.20 per share compared to $5.4 million and $0.20 per share in the same period a year earlier.

The EPS of $0.20 was below our expectations as a direct result of the revenue shortfall we experienced. The revenue shortfall resulted in direct profit that was not earned and a lower recovery of overhead costs, resulting in a significant negative impact to our bottom line. As revenue volumes increase, cost under-absorption should improve as the existing cost structure is leveraged.

In the first quarter of this fiscal year we earned $0.35 on revenue of 340 -- excuse me, $0.20 on revenue of $342 million compared to $0.35 on revenue of $313 million -- excuse me, this is -- so this quarter we earned $0.20 on $313 million of revenue. Last year we earned $0.35 on $342 million of revenue. The vast majority of the $0.15 difference in earnings per share is directly related to the $29 million revenue decline as I just discussed. The timing of project awards and starts will continue to impact the back half of the year.

Therefore, we are decreasing our annual revenue guidance from a range of $1.3 billion to $1.45 billion to a new range of $1.2 billion to $1.3 billion. We expect this decline in revenue volume to impact our earnings per share and are therefore reducing our previous EPS guidance to $1.10 to $1.40 to a new range of $0.75 to $1.05.

So we've also included a backlog roll-forward in the slide deck. During the quarter we began to see positive indicators as we experienced an increase in project awards. Strong bookings in the second quarter of $310 million were up from $260 million in the prior quarter. This represents a book to bill of 1.0 for the quarter, and our largest quarterly bookings since fourth quarter of fiscal 2015.

The second quarter of our fiscal year, which represents the fourth fiscal quarter for many of our customers, is typically the lightest in terms of bookings for the Company, as evidenced by book-to-bill ratios of 0.5 and 0.6 for the second quarters of fiscal 2016 and 2015, respectively.

In addition to project awards during the quarter, we added $30 million of backlog in December related to the Houston Interests transaction. We ended the quarter with backlog of $814 million, which is up from $787 million at the end of last year -- last quarter.

Moving on to our segment results, there is also a slide on these results. Revenue for the storage solutions segment was $129 million in the quarter, an increase of $7 million on a year-over-year basis.

The higher revenue was due to increased terminal construction activity on the Dakota Access pipeline project, as well as higher Canadian volumes which were partially offset by lower domestic storage tank construction. Despite under-recovery of overhead, excellent project execution in the storage solutions segment produced gross margins of 13.3% for the quarter as compared to 11.8% a year ago.

Revenues associated with the large Dakota project will continue to decline over the second half of fiscal 2017 as the project is completed. The delay in indicated-but-not-released project awards in the storage segment will cause cost under-absorption issues to continue in the near term.

In our electrical infrastructure segment, revenue of $103 million increased by close to 13% versus the prior year as the result of continued work on the Napanee power project in Canada. Gross margins in the quarter were 7% compared to 4.4% in the same period last year.

Margins in the prior-year quarter were negatively impacted by project closeout costs. Margins in the current quarter were negatively impacted by the change order settlement on the Napanee project. This settlement resulted in a second-quarter reduction in earnings related to adjusting the gross profit margin and the percent complete on the project due to the increase in project size.

Revenue for the oil gas and chemical segment was $56 million in the quarter, down from $62 million in the prior-year quarter. The decrease is primarily related to lower volume as refiners continued to limit their spending activity.

Gross margins were 4.4% in the current period versus 9.7% in the same period last year. The lower margin for the current period resulted from under-recovery of construction overhead costs. As customers in this segment are continuing to be cautious about the use of their resources in the short term, we are managing our way through the softer environment with the expectation that the maintenance and capital project work will result in increased expenditures as we move through calendar 2017 and into 2018.

Moving to the industrial segment, headwinds persist from a top-line perspective, with revenue for the quarter of $25 million, down from $48 million a year ago. The decline, as previously discussed, is due to lower business volumes in the iron and steel and mining markets, as well as lower revenue volumes in other industries, such as fertilizer.

Gross margins of 5.9% in the quarter were down from 11.5% in the prior year as project mix and under-absorption issues limited profitability.

So let's move to the six-month slide. On a consolidated basis revenues for the first half of fiscal 2017 were $654 million as compared to $643 million in the prior fiscal year.

Gross profit for the six-month period totaled $60 million versus $65 million in the prior year. The decrease was primarily the result of lower overhead recovery in certain portions of the business.

Consolidated SG&A expenses were $38 million and $44.6 million for the six months ended December 31, 2016 and 2015, respectively. The decrease in SG&A on a year-over -year basis was primarily attributable to a non-routine bad debt charge of $5.2 million in the prior year.

Net income for the first six months of fiscal 2017 was $14.6 million as compared to prior-year net income of $15.4 million, with fully diluted EPS of $0.54 and $0.56 in the same periods.

I'd like to move on to cash and there's a second-quarter cash bridge slide that you can turn to.

At December 31, 2016, our cash balance stood at $66.2 million as compared to $71.7 million at the beginning of the fiscal year. The cash balance along with availability under a senior credit facility provided liquidity of $228.4 million, an increase of $55.2 million, or nearly 32%, since the last quarter.

It should be noted that the strong financial position has been achieved after allowing for the acquisition of Houston Interests in December of 2016. Additionally, subsequent to December 31, 2016, the Company executed an amendment increasing its credit facility to $300 million to fund our strategic growth objectives going forward.

I will now turn the call back to John.

Thank you, Kevin.

As I mentioned in my opening remarks, while we believe market conditions are beginning to improve as it relates to project awards, timing of that improvement can be difficult to predict. As you know, our storage solutions segment this year was driven largely by the Dakota Access pipeline project. It was our expectation at the beginning of the year, based on the opportunity pipeline we had in front of us, that we would be able to backfill the revenue associated with this project in the second half of the year. While many of these opportunities continue to exist, the anticipated timing has slipped. And in some cases those projects have slipped into our fiscal 2018.

I'd like to draw your attention to a slide called Real World Examples. Let me give you a real world example. While I can't get into the details as to the client and location of the project, we are in a soul-sourced position for the construction of a multimillion-barrel crude oil terminal project. We've been working on the FEED since early calendar 2016, as well as planning and developing project budgets and providing permitting support.

Based on our intimate knowledge of the project we expect that a contract (inaudible) place in the fall of 2016. Over the past few months we have had multiple changes in the project award date, which is now currently expected to be late in our fiscal 2017.

While this is a very real example of how revenue can shift from one period to another and while our customers continue to take a cautious approach to the timing of their projects, the fact remains the projects themselves are not speculative. They are a fundamental part of our customers' long-term business plans and operational integrity.

So as the markets continue to recover, the real question related to project awards isn't a matter of if, but when. Against this backdrop I'd like to walk you through our view of the broad market outlook, as well as our current project pipeline.

Moving on to the Macroeconomic and Market Outlook slide, as we discussed earlier global economic growth has been weak over the past couple of years. But beginning in the second half of calendar 2016, signals began to point to more positive indicators:

ISM's consolidated PMI has been turning up, a signal of manufacturing strength going forward. Commodity prices are improving. Economists are forecasting modest improvements for global GDP growth. There is emerging consensus and growing political support for a more engaged fiscal policy to stimulate economic rather than relying solely on monetary policy. And specific to the markets we serve, a different tone is coming from Washington and the new administration.

Moving on to energy and our energy slide, in the energy market, pipeline build-outs for crude as well as natural gas distribution will require not only storage, but import and export terminals, pumping stations, and gas processing facilities. With the expansion of our Matrix PBM engineering group, the additional expertise acquired provides enterprise a new entry point across the energy value chain.

Moving to liquid natural gas, in LNG specifically current global supply and demand is expected to be in balance by 2021, 2022. But with a four-year build-out Matrix is well positioned for the next wave of large-scale export facilities, given that timing requirements demand awards in the coming year.

At the same time, demand for small-scale LNG facilities continues to grow with Matrix uniquely positioned as a contractor of choice in this space.

Moving to the energy petrochemical and refinery slide, in the petrochemical arena industry group IRR estimates that beginning in 2017 there will be upwards of $1.5 billion in planned maintenance to be spent by Gulf Coast refiners, with additional potential of up to $900 million planned for California alone.

As it relates to refinery turnarounds, our support services that are assisting our clients' turnaround planning efforts would indicate that the fall of calendar 2017 and calendar 2018 will be considerably stronger than previous periods. Additionally, with our recent acquired expertise in sulfur processing, handling and waste management, as well as refiners' work to meet air quality standards, we expect even greater opportunities to bid and win major projects.

Moving on to gas processing, abundant low-cost natural gas continues to drive new capacity build and spending in gas processing and NGLs. Additionally, increased activity in domestic petrochemical facilities will drive maintenance and small cap projects, creating additional strategic opportunity.

On power and power generation facility slide, in power the expected increase in natural gas-fired power generation provides additional project potential. As a percentage of total power generation it is expected to grow from 23% in 2015 to over 31% by 2040, representing the addition of 250 gigawatts of capacity.

The transition to gas-fired power generation is the result of lower fixed costs, shorter construction cycles, and an accommodative political and regulatory environment.

To the transmission and distribution slide. The immense project infrastructure needs represent significant growth opportunity and being driven by grid modernization to include smart technologies, hardening, replacement of aging infrastructure and reduction of grid congestion. In addition, the connect of renewable energy assets to the grid and a shift from coal to natural gas generation is resulting to upgrade and improve transmission infrastructure and to ensure grid reliability.

Our electrical infrastructure segment continues to experience a strong bid environment in both delivery and generation and is a key focus area for strategic growth, both organic and acquisitive.

Moving to industrial, the industrial market's infrastructure needs and improving commodity pricing provide long-term opportunity both domestically and abroad. We expect the expertise and customer base brought by Houston Interests in bulk material handling in cement, grain, ash, coal and fertilizer, as well as logistics and automation controls, will bolster this segment.

As a longstanding contractor of choice with a proven reputation for excellence in the iron and steel and metals and mining industries, we are confident about securing new work as global economic growth improves, commodities prices rise, and the demand for their products increase.

I'd like to spend a little time on the next slide talking about Matrix PDM acquisition and Houston Interests. This acquisition will have an enterprise-wide impact to the Company's growth and development. Just a few examples of the immediate impact this acquisition has are as follows.

Historically Matrix PDM has focused primarily on FEED or support engineering for tank and terminal projects. Today we are not only better suited to expand and support our traditional markets but also provide FEED work, process design, systems integration, and detailed engineering design work in bulk material handling terminals, gas processing facilities, sulfur cooling and melters, marine structures, and more, all bringing expanded scopes to traditional EPC opportunities.

Enhanced engineering expertise is already allowing the Company to aggressively pursue larger project scopes in small- to mid-scale LNG terminals. In Mexico, Latin America and the Caribbean where we see an increasing number of project opportunities, our expanded expertise allows us greater capability to pursue these projects.

Industry-leading expertise required in sulfur processing, handling and waste management, as well as [cooling] and sulfur melting, will bring opportunities domestically and internationally with the moves from liquids to solids for [transporting].

These expanded capabilities give us a new entry point into the EPC projects as opposed to our traditional construction-led offering. We now have in place the additional critical pieces necessary for us to better serve our customers, expand our services to support the substantial infrastructure projects ahead. Doing so not only better serves our customers, but also creates significant opportunities for our employees and, in turn, greater value for our investors.

From an integration perspective we could not be more pleased with how quickly and smoothly our two organizations have come together. Across all of our operating segments, Matrix is in the proposal stage or have submitted bids on $3.1 billion in projects as of the end of our second quarter, up 14% over Q1. This represents a subset of our overall opportunity portfolio. And, in addition, it does not include our traditional recurring maintenance and MSA work which [compromises] approximately 40% of our business volume on an annual basis.

Before we open for questions I want to spend a few more minutes setting the stage for what's to come. Fiscal 2017 marks the fifth year of a strategic plan we implemented to improve long-term shareholder value while positioning Matrix to take on more and larger projects, extend the depth and breadth of our services and expertise, and diversify into new markets. In that time we have accomplished a great deal, and have done so against a backdrop that is extremely challenging for our customers and for us.

If I could call your attention to slide -- Years of Growth and Development and Diversification.

Because of the quality and commitment of our people and in turn our brand strength, we have achieved record safety results; diversified our markets and our services; transformed our storage solution work from tanks to full terminals; extended our work from flat-bottom tanks to specialty vessels; grown the scale and complexity of our projects; expanded our geographic footprint; significantly augmented our workforce; improved the depth of our resources, services, and engineering capabilities; and nearly doubled our revenue and average backlog.

This five years of growth and development and diversification have positioned us for the significant market opportunities ahead. Supporting this belief, we have just presented our refreshed strategic plan to our board of directors, which includes a target of nearly doubling the size of the Company in the next five years.

So the slide entitled Our Strategy in 60 Seconds -- the 60-second summary includes achieving zero incident safety performance; improving execution and bottom-line performance; continuing with our organic growth while accelerating that growth through a series of strategic acquisitions; strengthening our diversified portfolio; elevating engineering to top-tier status; and developing best-in-class people at all levels of the organization.

Based on the outlook I've provided, with substantial infrastructure work ahead and our confidence in our people and our path, we have every confidence in our ability to achieve our goals.

With that, I would like to open the call up for questions.

Certainly.(Operator Instructions) Matt Duncan; Stephens.

Want to start on Napanee. Can you just give us an update on how that project is tracking? When is it now supposed to be done? And maybe if you could talk a little bit more about what the resolution was that you reached with the customer on that project.

The project is tracking on plan with the client. Their [COP] date is in mid-2018, calendar 2018. And so we continue to work with the client towards that end.

As far as the details of our resolution with them, I think that's something we wouldn't normally talk about.

Well, maybe if we take a little bit different angle on that, then, John. And maybe, Kevin, this is for you. You mentioned that it hurt your gross margin for the electrical segment and your earnings this quarter. If not for that settlement how much higher would earnings have been? And what would gross margin for the electrical segment have been?

Well, I think the overall gross margins would have been closer to our normal range that we give. If you look at that settlement, we've got an agreement where we are going to be able to recover additional costs to complete the project with the customer. It's I think a favorable outcome from both sides. We're working well with that customer.

But as a result, it makes the overall project a larger project. And so you have a percentage of completion adjustment that gets booked in the quarter and where you're saying you're less complete on the project. And as a result it took the quarterly gross margin percentage down from what we normally would see.

Okay. And, Kevin, if I remember correctly, the historical range you guys are targeting in electrical is 11% to 13%. Is that right?

It's 11% to 13% if we're getting full recovery of overheads. And while we've talked about overhead recovery in primarily the other three segments, there's been a smaller impact to the electrical segment. But it's not significant.

Okay. So essentially you would have had 300 to 400 basis points better gross margins is kind of how I take that. So that helps.

When we look at the guidance then, thinking about segment margins, when I look at what you guys did with guidance, the revenue cut versus the earnings cut, the earnings cut kind of stands out as being far more significant. So I'm trying to understand sort of what the delta is here between the revenue cut and the earnings cut. And I certainly get that there's an under-recovery of overhead and construction cost, and I'm sure that's a big part of the impact.

But what is the assumed gross margin on a segment basis for your four segments for the back half of the year that would get us to the middle of your new earnings guide?

Well, if you look at the last half of the year -- first of all I want to make sure it's clear that we're not forecasting some problem project. The decrease in our EPS is directly related to our reduction of revenues.

And this goes to the explanation I had in the script where we talked about you're not only losing the direct margins you'd normally make on a project, you're also losing now because you're not able to apply overhead. And so it makes a project that you may have normally earned 10% on, now you're actually -- when you're not doing that work you're almost losing 20% of that value because of the overhead application.

And so we've talked about this. This is going to continue on, say, through the third quarter. So the normal margins we would expect in those segments, I don't think those ranges have changed on a full-absorption basis. But we will see under-absorption. So I think the consolidated gross margin in this quarter was 9% after that under-recovery. And I wouldn't expect it to be that significantly different in the last half of the year.

Okay. At what point then, Kevin, do we get back closer to the target ranges for each of these segments? And you may just remind us what those are.

So we've talked about ranges for electrical and storage that are in the 11% to 13%. I think you saw that the storage actually exceeded that this quarter, even with some under-recovery. Showed some pretty good execution.

We've talked about 10% to 12% with oil gas and chemical, but that segment has been impacted significantly with under-recovery. So I think it's probably not until we see the volumes return to fiscal -- in fiscal 2018 that we get back to that range for oil gas and chemical.

And then on industrial, we've talked about 6% to 8% margins. And I think when we gave that guidance at the beginning of the year we were assuming that we would have this low volume. And so we were already forecasting that in that range. Once we get to where we've got full recovery in the industrial segment, we might be at, I don't know, 8% to 10% margins.

Okay. All right. Very helpful. And then the last thing from me and I'll hop back in queue. Just on Houston Interests, how much revenue and EPS accretion have you included in the guidance for the year from Houston Interests?

So, as we talked about, they were about a $100 million revenue company and they're going to be in our results for six months, basically.

Okay.

So you can just do the math there, pretty familiar, so. Now, the EPS impact, it's going to be negligible because of acquisition and integration costs and because of amortization of intangibles.

Kevin, what are those acquisition and integration expenses? Because I think what we're trying to see here is what the operating impact is on earnings. So how much additional integration expense do you have included in the guide for the rest of the year?

So we incurred about $700,000 in the second quarter. And we'll probably incur a similar amount in each of the next two quarters.

All right, perfect. I'll hop back in --

And the reason for that is we're doing a number of things. We're really integrating this acquired business with our legacy PDM business, including bringing those employees physically together in one location. And we're doing a lot of things to rebrand that company. So those are the types of costs that we're incurring. It's not employee turnover costs at all.

Great. Thanks, guys.

Tahira Afzal; KeyBanc Capital Markets.

So I guess first question is, we've seen two pretty big pipelines in Canada getting approved over the last few months. Line 3, which sort of goes into the US, [the south] and obviously the one in Canada. So can you talk about what the Canadian market is looking like in terms of some of the terminal business coming back and growing? Are you seeing anything really loosening up or is it too early?

I think it's still a little too early for us. We're continuing to see some moderate bidding activity in western Canada associated with both existing pipelines and some of the new ones that (inaudible) talk about. But we're not anticipating converting any of that into actual projects of any significance over the course of the next four or five months.

On the eastern side, our tank work we've done there, they've been pretty busy. They actually have had a pretty good year there with some new tank construction and some -- a fair amount of maintenance and repair work on the eastern side of the country.

The approval for TransCanada to resubmit their permit for Keystone XL will create project opportunities for contractors like us on both sides of the border. But of course the timing of that is -- we're just not sure how long that process is going to take.

Got it. Okay. And it seems like it might be late 2018, 2019, so you seem to be pretty right on it (inaudible).

I guess the next question is if I look at your storage solutions and oil gas and chemical opportunities, can you talk a bit about the profile there? Are they coming more from some of the integrated majors, the refiners or the midstream companies? Because all of them are giving very different outlook, and I'm trying to figure out where your business might be shifting from a customer perspective?

I would say the preponderance of the opportunities are not necessarily with the refiner, with your traditional refiners. While we may have some opportunities for some new storage tanks or some maintenance and repair, a lot of our storage opportunities are coming from midstream companies or bulk and crude and in gas liquids. Significant amount of activity in small scale, small to midscale LNG projects for export into the Caribbean, and as well as refined products and crude both coming out of the Gulf Coast and projects for importing and storage within Mexico and some of the Caribbean Islands.

Great. Okay. That's actually very helpful. And I guess my last question is, given all the puts and takes and timing you've seen this year and even last year to some extent on when these projects really roll out, is your approach to when you set guidance going to be any different? Is there going to be some extra skepticism built into the schedules and is that something we should be thoughtful about?

So, extra skepticism? I think we're doing what we always have done. We stay close to our clients. We try to appreciate what they're -- on each individual project where they are from a permitting, from a development, from a financial closure, their individual board meetings, where they are in scope development. And so we try as best we can to pick up our signals on the market from them. But unfortunately there are things we can't predict. So I think, you know, (technical difficulty) for us.

And I think our clients also, this whole presidential election cycle, which has been kind of divisive, going through who was actually going to get into office and where their administration was going to head from an energy and an infrastructure standpoint and taxes. I think all of us probably have underestimated what that impact has created in the board rooms of many of our clients and how that's affected their decision making or what they're going to do.

All that being said, our opportunity pipeline is continuing to tick up for projects that we see both our sort of existing client base and some new clients that are trying to get in the queue for what they see as, for the next two, three, four years, as some pretty extensive infrastructure build-out.

I think there's also a change in the environment we're in with -- you've seen all the approved projects all of a sudden get stopped.

Right.

And it's because of things happening out there. So I think our clients are being a little more careful and dotting a few more I's, crossing a few more T's before they award projects and before they've expended significant dollars on a project that they may incur some delays on.

Right. That's a good point Kevin brings up. So you can imagine the -- while we were fortunate to have, to essentially reach mechanical completion on the Dakota Access terminals that we built that are going to be transferred, you can imagine the board room of other companies going: Hey, wait a minute, if someone's going to step in and stop a project that had already been approved and had already had billions of dollars invested in it, what does that mean for our projects? And do we need to really think about and see where the Administration's focus is turning?

And so I think -- when I said that I think we've underestimated the impact of this whole presidential election cycle, I think that is potentially one of the outcomes of that.

Given some uncertainty and might continue given how everything is unfolding, would you be more thoughtful and cautious and build a cushion into timing? It seems the pipeline's really good. And I guess my only concern is I would hate to see you guys, your credibility getting hurt by something that's really not in your control, when you're doing a good job.

So we felt good about going into this year. We were --

60%, 65% (inaudible).

Yes, (inaudible) and with a very strong opportunity pipeline. So that's probably above the normal range of how we enter a year. But we were mindful of what was going on in the markets around us. And so we set a pretty wide range of revenue and outcomes for the Company when we set our original guidance because we had some concerns there. And obviously it was not as good as we -- even our worst case that we expected.

So I think we've tried to capture that hesitation and lack of clarity and confidence that we're picking up from our client base and how we're seeing projects move around. And so we've done the best job we can with the guidance we've established to get to the end of this fiscal year based on sort of the lessons learned from this first half of the year.

Got it. Thank you both.

Stefan Neely; Avondale Partners.

So I did have a question about following up on project awards and timings. You mentioned the crude oil terminal and the delays there. Is there any details you could give us about what has been sort of the catalyst behind that? Has this been -- is the award delay due to something with the customer in economics? Or is this a permitting issue or what?

No. The permitting is in good shape. There's been some movement on the ownership structure. There's been some movement on the land. And then there's been scope additions and changes. So as this project has moved in time and this client has taken a different view of their off-take agreements and what the demand is going to be, there's been pluses and minuses in the scope, in the volume of the terminal and the type of products they're going to run through it. And so all those things have just been -- you know, the changing market conditions and the changing, or potential change, in regulatory environment has all created some ups and downs through this process.

Understood. Thanks. So do you feel pretty confident I guess in where the potential award date sits now then?

Well, that's a very good question. Yes. I guess we feel confident based on the timing now and what we know at this point, what needs to get done between now and achieving their financial close and approval for the project. That being said, if there's some other disturbance in the oil markets or some other weird stuff that comes out of Washington they can't control. But I would say at this point we feel pretty comfortable. We feel very comfortable this project is going to happen. It's just this timing issue is difficult.

Sure. Okay.

Right now it's forecasted to be awarded in the fourth quarter. So it's going to have not much of an impact on fiscal 2017.

Yes.

Okay. Understood. My next question, going over to electric, we had talked about in previous quarters the potential for you guys picking up some more work there in the power plant side. Can you give us an update on what you're seeing in terms of the end markets, anything that you feel is imminent in your pipeline and whether that's you're still looking at full EPC or subcontracting work there? That would be great.

On the generation side, most of our focus over the last 12 months has been more related to packages related to ongoing existing projects where we would either -- in situations where clients are acting as their own general contractor or in situations where there's big EPC firm and we're bidding into them either the electrical packages, the centerline erection, somewhat of the piping services. And so we've been pretty -- fairly busy there on that bid cycle. We've been sort of focused on the projects that fit our capacity based on the timing of when we think those awards are.

While we have not announced it yet because of approval from the client, we did win the full electrical above-ground package for a generation facility in the Northeast. We had bid more pieces on that project and were not successful, so there was an expectation in this fiscal year that we would have won more work associated with that project, there would have been more of the centerline erection and the mechanical work. But we were pleased to get the award on all of the above-ground electrical work.

Okay, perfect. Thanks for the color there. And lastly, looking at the refinery maintenance, it seems that there's been a pickup in that so far in the first quarter. Are you guys seeing any of that at all? Or is it still mostly a fall 2017 event for you guys in your mind?

I think what our approach (inaudible) was in our remarks is that the work that we do traditionally with a variety of our clients, to provide planning and budgeting and scheduling and those kind of (inaudible) turnaround services, we're very active. And the projects that they're focused on, they're starting to come to fruition in our fourth quarter. But we would say, based on that activity, we would probably confirm other people's comments that the fall of calendar 2017 and moving into 2018 will be much more activity than what we've seen over the past couple of years.

Okay, perfect. That's helpful. I'll get back in the queue now.

(Operator Instructions) Matt Duncan; Stephens.

Do you have anything either in your backlog or in the opportunity funnel of projects that you're looking at that will require a FERC commission order to be able to move forward now that we're in a situation where there's only two commissioners there and there's kind of a little bit of a standstill? Just trying to see how that may impact you here in the short term.

In the long term it's a longer list. In the short term, there's really only one project that we are looking at that we think could be delayed a couple months because it's waiting on its FERC approval.

If you take a long-term view of some of the projects that we're looking at, for instance the big storage tanks on some of the export terminals that we're bidding into don't have their FERC permits yet. But I don't see it as a delay in those jobs because the award and the timing of those jobs is far enough out that the new FERC commissioner will get in place. So I think right now there's only one project really of significance that's in our immediate gun sights that could -- could -- experience a delay. But we're in early stages for that. We've certainly not been selected for that project. And so there continue to be a lot of back and forth here between pricing and contracts and scope and that sort of thing. So hopefully the timing of that activity will coincide with the appointment of a new commissioner for FERC and all those -- all the sun and the moon will come into alignment at the right place.

Got it. And, well, not to get too much into politics, but I would think that with the mix-up at FERC, that's probably going to be generally a positive, right? What maybe has been a little bit of a headwind from a regulatory environment feels like it's going to become potentially a little bit more of a tailwind. So what kind of conversations are you guys having with your customers on that front? Is that maybe part of why you're seeing a little bit more positive attitude from them kind of looking forward?

So I don't have anything specific. I would think that our clients have got the same view that you just stated, that the expectation here is there's going to be a push by the new administration for FERC to speed up their approval processes. And I would say, based on the activity of our new President, he doesn't seem to be afraid to say what he's thinking. So I would think --

Understatement of the year.

-- that the people in the FERC -- yes -- the FERC Commission will certainly feel the point of that sword.

Yes, I would think so. Okay. And then last thing, obviously you just got done with the Houston Interests deal, but you've also upsized your borrowing capacity. Are you still looking at other acquisitions? What sort of stuff interests you right now? Kind of give us an update on what your thoughts are on M&A.

We are absolutely still interested in acquisitions. As Kevin had said, we've upsized our facility to handle not only growth that we anticipate and expect in our business, but also to give us the capacity to handle that growth and to find acquisition targets.

Probably our number one focus today is to expand capacity and geography in electrical infrastructure on the transmission and distribution side.

Perfect. All right. Very much appreciate it. Thanks, guys.

And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to John Hewitt for any further remarks.

I want to thank everybody for being on the call today -- and some great questions. And we'll look forward to speaking with you all in the future. Thank you.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.