Matrix Service Co (MTRX) 2017 Q4 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 Fourth Quarter and Fiscal Year Ended June 30 Conference Call. (Operator Instructions) I would now like to introduce your host for today's conference, Mr. Kevin Cavanah, Chief Financial Officer. Please go ahead, sir.

Thank you. Before I begin, please let me remind you that on today's call, the company may make various remarks about future expectations, plans and prospects for Matrix Service Company that 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.

Further, please be advised that Matrix, its directors and certain of the executive officers are participants in the solicitation of proxies from the company shareholders in connection with the upcoming 2017 Annual Meeting of Shareholders. As we disclosed in our preliminary proxy statement filed yesterday, Engine Capital LP has notified Matrix of its intent to nominate 2 director candidates for election to the board at the 2017 Annual Meeting. Shareholders are strongly encouraged to read the proxy statement, our company proxy card and all other documents filed with the SEC carefully and in their entirety, as they contain important information, information regarding the identity of company participants and their direct and indirect interest by security holdings or otherwise, as set forth in the proxy statement and other materials filed by the company with the SEC. These materials can be found for free through the company's website in the section Investor Relations, or through the SEC website. We will not comment further on the director nomination notice of Engine Capital on this call. I will now turn the call over to John Hewitt, President and CEO of Matrix Service Company.

Thank you, Kevin. Good morning, everyone, and thank you for joining us. We have a lot of business results and strategic information to cover this morning. So I want to apologize to you ahead of time that today's prepared remarks will be slightly longer than normal. First, I'd like to extend our heartfelt thoughts and prayers to all those impacted by Hurricane Harvey and ask those in the path of Irma to heed those warnings. The catastrophic damage inflicted by Harvey along the Gulf will be felt for some time to come, and the people affected by it, including our own employees and customers, will all need our help and support. As they begin the path to recovery, it's also heartwarming to experience the resiliency of the human spirit and to see how people from across the country have come together to help so many in need. Let's all join together to do what we can.

On a positive note, I want to congratulate our team at the Matrix Service fabrication facility at the Port of Catoosa, outside of Tulsa, for achieving OSHA's Voluntary Protection Program, or VPP, Star designation. This designation, which is the highest designation given by OSHA, is reserved for employers and employees who demonstrate exemplary achievement in the prevention and control of occupational safety and healthy -- and health hazards. Finally, I'd like to take a moment to also congratulate all of our employees for achieving a consolidated total recordable incident rate of 0.49 in fiscal 2017. This is a record for our company and represents

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for our diverse portfolio of businesses. Thanks to all of our employees for putting our core value of safety first. It differentiates us from our competitors, and in turn, results in greater long-term value for everyone.

Turning to our results. I want to discuss, as I did last quarter, 2 key issues that had significant impact on our fiscal 2017 results. Related to the project in the Electrical Infrastructure segment, we appreciate the concerns everyone had over this project. As we said on the last earnings call, we were confident in our ability to work through these issues in an equitable fashion for both parties. Accordingly, I am pleased to report that we have reached a resolution that has resolved all open claims and modified our contract terms so that all costs and overheads on the remainder of the work we perform will be recovered. As such, no additional project charges are anticipated.

Our work on the project is expected to be substantially complete by the end of this calendar year. The greater impact to our financial results was the cumulative effect of continuing end market softness as a result of volatility and slowness in commodity price recovery, modest global GDP growth and the complex and uncertain federal regulatory and legislative environment.

Against this backdrop, those we serve in the energy and industrial markets have deepened their diligence and extended the process for approval of capital projects, and customers have spread maintenance expenditures over longer periods. These delays have resulted in lower revenue volume for Matrix in this fiscal year, reducing our opportunity to generate direct gross profits and fully recover construction overhead costs. With that said, many large capital projects that we have been developing over the past year are forthcoming, and in fact, some are already in contract negotiations.

Kevin will provide more detail during his comments but the impact of this lower revenue, not the charge on the Electrical Infrastructure project, is the primary reason for the company's fiscal 2017 break-even EPS. While we cannot control industry and macroeconomic headwinds that impact maintenance spending, project awards and starts, we can control our cost structure. However, the speed at which we can make midcourse adjustments to align this structure to revenue will lag. Keep in mind that the challenge is to manage our construction overhead costs in a way that ensures we have the resources necessary to develop, propose and execute on our contractual commitments as markets improve.

We have taken numerous affirmative steps to right-size portions of the business to reduce our cost structure that meets the forecasted project opportunity pipeline. On a consolidated basis, in fiscal 2017, we adjusted our business plan for market softness, and as a result, reduced total overhead cost by over 10%. We are continuing to align our cost structure with anticipated business volume for fiscal 2018.

Overall, project direct profit margin performance was strong throughout the business on the available revenue, with the exception of the power generation project that negatively impacted margins in the Electrical Infrastructure segment. Direct profit margins in our Oil Gas & Chemical, Storage Solutions and Industrial segments were in line with or exceeded expectations. On a consolidated basis, the execution of our projects has been very strong.

Additionally, our consolidated book-to-bill was solid at 0.90, and as noted in our earnings release, project awards were up 34% for both the quarter and the full fiscal year when compared to fiscal 2016. This is indicative, in our opinion, of improving market dynamics, which while we remain cautious, is evident across all of our operating segments. It also stands as evidence to the value of our strategic objective to transition from tank contractor to a full terminal delivery model across both flat bottom and specialty vessel storage. Examples of this include the Vopak expansion award in March of 2017 and the Southwest Gas award made in July.

In Oil Gas & Chemical, our book-to-bill was very strong at 1.7, as capital construction projects, maintenance and repair work inside refineries and petrochemical processing facilities begin to trend up. This trend is further demonstrated by already booked fiscal 2018 turnaround work accounted for in this segment, which is 47% higher than that booked and completed in fiscal 2017.

Our groups are also seeing more requests for multiyear service agreements as refiners look to lock in needed labor resources. This segment is also being bolstered by additional project awards and higher-margin work, resulting from our enhanced Matrix PDM Engineering group, especially in the areas of gas processing and sulfur recovery and handling.

In our Industrial segment, our book-to-bill was also strong at 1.4. Included in this work are 2 thermal vacuum chambers, a niche specialty area for Matrix, as well as increased project work brought by our enhanced Matrix PDM Engineering. Current front-end development work on projects being executed by the subsidiary in the cement, agriculture and fertilizer markets as well as other material handling applications all had EPC project opportunities connected to their completion.

In the iron and steel market, which is suffering from soft global demand and international dumping in North America, we saw improving volume and better absorption of construction overhead in the fourth quarter of fiscal 2017, which we also believe represents a turning point as capital spending begins to resume.

As it relates to our mining and minerals services, with the recent improvement in commodity prices, specifically as copper has reached over $3 per pound, we anticipate increased maintenance spending and capital project opportunities. Book-to-bill in Storage Solutions was low at 0.55. However, we expect this improved -- we expect this to improve dramatically in the near term. As we have discussed on prior calls, the supply of affordable North American energy combined with a growing global demand and fuel switching is driving the build out of North American pipelines for crude oil and natural gas. This in turn has created demand for significant infrastructure, including storage terminals for pipeline logistics and energy exports, as well as storage and storage terminals related to bunkering, peak shaving facilities and chemical product distribution.

Part of our long-term strategy to ensure we win a significant portion of this project work has been to broaden our capabilities to offer complete lifecycle solutions, which was strengthened by the acquisition in fiscal '17 of Houston Interests. This acquisition brought, among other things, greater capacity and technical expertise in not only our core markets, but has opened up other critical infrastructure markets to the company.

Additionally, Matrix PDM Engineering's expanded front-end design work further strengthens our ability to generate project opportunities, and build strong and lasting client relationships. As of today, Matrix PDM Engineering is performing feed work on projects for crude oil, refined products, LNG and other natural gas liquids that have an ultimate EPC value in excess of $1.6 billion.

Let's not forget that our industry-leading position in flat bottom storage tanks and specialty vessels for both new build as well as repair and maintenance are also seeing a strengthening in demand. Finally, in the Electrical Infrastructure segment, book-to-bill was 0.70. In power generation, we made the decision in early fiscal 2017 to not pursue projects as the EPC or general contractor on new-build gas-fired generating facilities. This strategic shift has temporarily impacted our book-to-bill in this segment.

Considering this strategic shift, the remaining balance of the work in this segment, which represented over half the segment's revenue volume in fiscal 2017, had a book-to-bill of 1. This redirected strategy is underpinned by our market-leading position in the Northeast. At the same time, the immense infrastructure needs that exist across all of North America for substation, transmission and distribution creates additional significant opportunity for Matrix through continued organic growth and strategic tuck-in acquisitions.

In addition, significant project opportunities also exist for Matrix as a subcontractor for individual system packages on gas-fired power plant construction.

I'd like to make a few comments now about the impact of Hurricane Harvey to our operating segments. This storm has impacted many of our customers' Gulf Coast energy, midstream and chemical infrastructure facilities. The extent of this impact is still undetermined; however, many of our customers were well-prepared for its landfall. While the storm's effect has been impactful to energy pricing, we do not believe this is a long-term event.

For Matrix, our primary focus would be to support our customers' needs and keep our employees safe. We've had some demand from our core clients to provide industrial cleaning, maintenance and repair services as they work to get their facilities back online. In fact, we already have teams from our industrial cleaning and turnaround plant services groups that were mobilized to provide assistance as requested by our customers along the Gulf.

While these services may create some incremental revenue for our company, currently booked and anticipated projects in Storage and Oil Gas & Chemical segments could be temporarily delayed as facilities are restarted and storm effects are mitigated. In addition, there could be some collateral impact at facilities outside the Gulf region who choose to delay plant turnaround work in order to make up part of that capacity that's been temporarily lost along the Gulf. We view the overall impact for the business in the year to be positive. However, the storm may have the effect of moving some revenue into later quarters.

Now I'd like to talk more about our strategy for generating long-term shareholder value and returns. Looking back over the past 5 years, we've accomplished a lot. These accomplishments are the result of strong execution of our strategic plan, which nearly doubled the company's revenue while we conservatively managed our balance sheet. We grew organically in the markets we serve. We transformed our industry-leading Storage Solutions brand from tanks to full terminals and extended our expertise from flat bottom tanks to specialty vessels.

We expanded into new markets, added to our skill set and service offerings. We augmented our growth and geographic reach through multiple acquisitions and significantly enhanced our engineering and construction expertise. We've transformed the organization from primarily construction and maintenance to full EPC status, and today, offer our clients complete lifecycle solutions. The strategic plan for the coming 5 years builds on this strong foundation.

As we look forward, we believe our project pipeline and strategic objectives over the next 5 years will allow us to, again, double the size of our company and realize top-tier metrics to maximize long-term shareholder value. This strategy can be categorized into these main focus areas: safety, people and communication, clients and growth, and execution.

Safety is first and foremost, it is among the top reasons our field and craftspeople choose to work with Matrix and is also among the top reasons our customers choose Matrix.

In fiscal 2017, we achieved a record TRIR safety performance of 0.49. However, our focus remains on achieving 0 incidents. And we will do so by staying focused on safety leadership, training and development and on the use of tools and technology to achieve continuous improvement. Our clients set high expectations for the contractors that provide their capital and maintenance services. It is fundamental to our ability to bid and win work, and therefore, this strategic focus is critical to our future.

Our ongoing growth and success is also dependent on attracting, developing and retaining high-performing employees. We do so through strong leadership, succession planning and ongoing career development in an open and collaborative environment. Our culture, core values and performance management systems are all integrated to attract and retain top talent and achieve high performance.

In addition, we continue to deepen and broaden our communication, both internally and externally through multiple channels to ensure our employees, customers and shareholders understand our culture and are kept current on our strategy and business performance. We will grow by continuing to build strong, long-standing relationships with our customers. We will do so by staying true to our core values. We will also grow organically, and through a series of strategic acquisitions, build a sustained international presence, take advantage of new market opportunities, leverage the strength of our enhanced engineering subsidiary across the enterprise and the application of technologies.

And finally, we will continue to improve our organizational effectiveness and efficiency, and achieve consistent sustainable earnings by maintaining strong project performance, continuing our conservative approach to managing our balance sheet and focusing on achieving our key metrics. The long-term opportunities in our end markets are substantial. While fiscal 2017 has been both challenging and disappointing, we remain confident in our strategy and the long-term opportunities within the markets we serve, and our ability to capitalize on those opportunities. I will now turn the call over to Kevin.

Thank you, John. As John discussed earlier, the fourth quarter and full year results I'm about to discuss with you were driven primarily by a revenue shortfall across our end markets. In addition to the lost direct margin opportunity, the revenue shortfall resulted in the under-recovery of construction overhead and SG&A cost. During the year, we took definitive steps to minimize this under-recovery through a thorough review of the entire cost structure that resulted in reductions in workforce, consolidation of offices, minimization of capital expenditures and other cost reductions.

Specifically on a consolidated basis, we adjusted our business plans, which allowed us to reduce expenses by over 10% in fiscal 2017. These decisions were balanced against the need to maintain the infrastructure necessary to successfully bid, win and execute on revenue opportunities. We will continue to focus on cost control throughout our business, and specifically in areas of our business experiencing lower revenue volume as we move through fiscal 2018.

Now let's move on to discussing these specific results.

Consolidated revenue for the quarter was $292 million, which compares to $360 million in the prior year, a decrease of approximately $68 million or 18.9%. The decrease in revenue on a year-over-year basis was primarily due to a revenue decline in Storage Solutions that was partially offset by higher revenue in the Oil Gas & Chemical segment.

As John discussed earlier, from a project execution standpoint our people turned in a strong quarter. On a consolidated basis, direct margin performance met or exceeded our targets. The company reported gross profit of $23.1 million for the quarter compared to a gross profit of $34.1 million in the prior year quarter. Consolidated gross margins were 7.9% and 9.5% for the same periods, respectively. The decline in gross profit and margins was primarily the result of under-recovery of construction overhead costs in our Storage Solutions and Oil Gas & Chemical segments.

Consolidated SG&A expenses were $19.6 million in the fourth quarter of both fiscal 2017 and fiscal 2016. Fiscal 2017 included $3 million of recurring SG&A expense related to the ongoing operations of Houston Interests. These additional expenses were offset by overhead reductions that resulted from efforts to control our cost structure. As we indicated in our last call, tax rates for the fourth quarter were expected to be unusual because of the differential tax rates on the respective operating results in the U.S. and Canada, as well as the overall limiting effect of nominal earnings for the period on the deductibility of certain items.

In the current quarter, the company earned pretax income of $2.6 million. As a result of the unusual tax rate of 137%, this pretax income was reduced to a loss of $1 million, resulting in a loss per share on a fully diluted basis of $0.04. For the same quarter a year ago, Matrix reported net income and fully diluted earnings per share of $9.1 million and $0.34 per share, respectively.

Now let me talk about the fourth quarter segment performance. In our Electrical Infrastructure segment, revenue of $100 million represented a slight increase versus the prior year due to higher volumes on the power generation project. Electrical Infrastructure gross margins of 8% were down from 10.5% achieved in the same period last fiscal year. The year-over-year decrease in margins was a result of the previously-discussed large power generation project. As a result, gross margins were lower than our normal historical range of 11% to 13%. Revenue for the Oil Gas & Chemical segment increased 30% to $83 million in the quarter, up from $64 million in the prior year period. The increase was driven by work on the ultralow-sulfur gasoline relocation project from Monroe Energy, and additional work provided by Matrix PDM Engineering, partially offset by lower volume of turnaround work. Gross margins were 7.1% in the quarter versus 6.7% in the same period last year. Strong margins on capital work were offset by under-recovery due to low volumes in our turnaround, repair and maintenance business. A return to our historical gross margin range of 10% to 12% is dependent upon a return to a normal level of turnaround, repair and maintenance work.

Quarterly revenue for Storage Solutions was down to $79 million as compared to $165 million in the prior fiscal year. The decrease is primarily associated with the previously mentioned wind down of work on the gathering terminals for Dakota Access Pipeline, combined with delays in anticipated awards in Storage Solutions. While strong project performance resulted in direct margins that exceeded our expectations, gross margins were 8.4% for the quarter, down from 11% a year ago due to under-recovery of construction overhead cost.

Moving on to the Industrial segment. Revenue for this segment declined by 13% on a year-over-year basis to $28.9 million, which compared to revenue of $33.4 million last year. However, gross margins were 8.7% compared to 4.8% for the same period in the prior year on this lower revenue. The current period saw improved margin performance due to a combination of previously implemented cost reductions and solid execution in our iron and steel business. Additionally, we saw a modest rebound in volumes from weaker levels earlier in the fiscal year. The market environment for this segment has remained difficult the last couple of years, but we're beginning to see modest signs of recovery, which is reflected in our strong book-to-bill and improving backlog.

As a result of the anticipated recovery, combined with the addition of higher-margin work and expansion into new markets brought by Matrix PDM Engineering, we now expect segment gross margins to range between 7% and 10%, as compared to our previous range of 5% to 8%.

With regard to the 12-month results, revenue of $1.2 billion was down from $1.3 billion in fiscal 2016 in a difficult market, a decrease of $114 million or 8.7%. On a segment basis, revenue declined in the Storage Solutions, Industrial and Oil Gas & Chemical segments by $82 million, $48 million and $9 million, respectively. This was partially offset by higher Electrical revenue, which increased by $24 million.

In Storage Solutions, the decrease was primarily due to the substantial completion of the Dakota Access project and lower overall domestic storage volume. In Industrial, the lower revenue was primarily due to lower business volumes in the iron and steel, and mining markets, which followed the collapse in commodity prices dating back to 2014 and 2015. In the Oil Gas & Chemical segment, the modest revenue decrease was due to lower turnaround and maintenance work in the refinery business as customers continued to be cautious on their spending, partially offset by incremental revenue brought by Matrix PDM Engineering.

In the Electrical segment, the increase in revenue was primarily the result of higher volumes on the significant power project. Gross margins of 6.8% for the year were down from 9.6% a year earlier, largely due to the lower revenue volumes which led to the under-recovery of construction overhead cost. In addition, the previously discussed large power project also had a negative impact to gross margins in the year. Consolidated SG&A expenses were $76.1 million in fiscal 2017 compared to $85.1 million in fiscal 2016. The current year includes $6.2 million of recurring SG&A expense, including $1.6 million of noncash amortization that relates to the ongoing operations of Houston Interests.

Current year SG&A expenses were also reduced by the company's efforts to control its cost structure. Fiscal 2016 SG&A included higher incentive compensation expenses and a bad debt charge of $5.2 million from a client bankruptcy. For reasons discussed earlier, Matrix's effective tax rate for the fiscal year was 94.4%. We expect the effective tax rate for fiscal 2018 to return to a more normal level of approximately 38%.

Moving onto backlog. The June 30, 2017 backlog balance was reduced by $79.2 million to $682.3 million as a result of the scope adjustment related to the Electrical Infrastructure project settlement discussed earlier. This balance compares to $869 million at June 30, 2016; and $790 million at March 31, 2017. At the beginning of fiscal 2017, we indicated that we expected the downward trend in backlog to flatten out, which have normalized for the backlog adjustment as a result of the project noted above, is what we have experienced during the year.

Project awards in the 3 months ended June 30, 2017 totaled $262.9 million compared to $195.8 million during the same period a year ago, an increase of 34.3%. Project awards totaled $1,061,000,000 for fiscal 2017 compared to $794 million in fiscal 2016, an increase of 33.6%. Having said that, it's important to reiterate John's earlier comment about our book-to-bill, which was solid at 0.9, and exceptionally strong at both Oil Gas & Chemical and Industrial segments. While we remain cautious, we believe that both book-to-bill and project awards stand as a strong indicator of improving market dynamics, as well as the opportunities included in our project funnel.

At June 30, 2017, the company's cash balance was $44 million, and borrowings under the senior revolving credit facility were $45 million. The cash balance, along with the favorability under the senior credit facility, gives the company liquidity of $122 million at June 30, 2017. The company is in full compliance with all the covenants within our credit facility as of June 30, 2017. Availability under the facility is based upon a multiple of trailing 12-month EBITDA as defined in the facility agreement. As a result of lower earnings in the last half of fiscal 2017, availability under the facility is partially constrained.

Despite this constraint, the company maintains a strong balance sheet with the necessary liquidity to meet fiscal 2018 business plans. However, in keeping with our conservative approach to liquidity management and based on the growth opportunities we see on the horizon, in August, we executed an amendment to our credit facility. This amendment, which temporarily modifies certain covenant restrictions and increases projected availability, provides additional financial flexibility. This financial strength and liquidity continued to support execution of our strategic plans, funding of working capital, funding capital expenditures with a target of below 1.5% of annual revenue, pursuing strategic acquisitions and opportunistic share repurchases.

In fiscal 2018, we expect capital expenditures to be less than 0.75% of revenue. Acquisitions likely limited to bolt-on businesses and opportunistic share repurchases which are limited to $5 million under our amended credit facility.

Moving onto guidance for fiscal 2018. We expect full-year revenue between $1.225 billion and $1.325 billion and earnings of $0.55 to $0.75 per fully diluted share. We are optimistic about the future, considering the quality of our backlog, pending awards, strategic positioning and opportunity to pipeline. However, we are cautious, given the market volatility we have experienced over the past year, as well as the uncertainty around the timing of project awards and starts. As such, we have reflected this caution in our guidance.

Additionally, the majority of the earnings that underpin this guidance are expected to occur in the back half of the year. I will now open the call to questions.

(Operator Instructions) Our first question is from the line of Tahira Afzal of KeyBanc Capital Markets.

I guess, first question is, if I look at the fourth quarter and just multiply, let's say, by 4, my revenues end up a little below your guidance range, but my profitability seems to be much higher than what your EPS guidance would suggest. Is that just your conservatism around utilization? Or is it something around the mix that I should be taking into account, or maybe tax rates, et cetera? Anything would be helpful there.

It's a number of things, Tahira. So the tax rate is a big impact. But I think a bigger impact is more of the mix of work. If you think about fiscal '17, we had 2 large capital projects ongoing and the revenues associated from those projects for Dakota Access were essentially done. So there's very little revenue that would come through in fiscal '18.

For the power generation project, the revenues will be much lower next year as a result of the scope reduction. So that's being replaced by revenues in portions of our business where we've experienced under-recovery of construction overhead costs. So I think that has an effect of improving the overall results that we'll report.

Got it. Okay. And I guess the next question is, Kevin, you gave us -- you've always given a very helpful range in terms of segment margins. I guess you've given us an update on industrial margins maybe ticking up now. Once in that range, it will be good to hear, but it seems, again, of all 3 other segments, maybe you're assuming some level of underutilization. As you said largely on maybe lower capital projects in the mix right now. If you look at the other 3 segments, any update on the segment margins there? And what should we look for? Is there a chance that the margins could end up hitting lower than that range?

Yes. So I think if you look at Storage, we've continued to perform well in that segment from a direct margin performance. The last half of the year, the margin -- the gross margin was lower because of the under-recovery dip in revenue volume. John mentioned the book-to-bill of 0.55. But we've also got some project awards that we're anticipating that would help that segment. So I think our expected range long-term for Storage hasn't changed. It is still 11 to 13.

Now with that said, I think the first part of the year, it will be below that because the volume won't be at the level that will allow for fully achieving that margin. If you look at Oil Gas & Chemical, we're anticipating improvement in the maintenance and repair and turnaround business. That volume comes up, we'll start moving toward that 10% to 12%. I'm not saying that for the full year we would achieve that. But I think we'll start moving back up toward that level.

The Electrical segment, we've said 11 to 13 is our long-term range. Current mix, it might be a little lower, and it will be lower this year as we complete the power generation project, specifically during the first half of the year.

Our next question is from the line of John Franzreb of Sidoti.

I want to stick a little bit with the revenue theme here. First, on the fourth quarter results, how much did Houston Interests contribute to the top line?

The Houston Interests revenues for the first 6 months was -- it was a little less -- is $40 million to $50 million. So I'd say it was $20 million or so in the fourth quarter.

And Kevin, is your expectation a similar kind of revenue contribution in 2018?

About that or a little better. I mean they've been impacted by the -- same things have been impacting the rest of our business.

Okay. And I want to make sure I understand what's going on in Electrical Infrastructure. If I heard you correctly, John, it sounds like your part of the scope will be done by the end of this calendar year. I actually thought it was going to be mid calendar 2018. A, did I hear that properly, and B, does that mean that the revenue profile -- if I also heard your prepared remarks properly -- kind of get cut in half in the March quarter for Electrical Infrastructure?

Yes. I think -- I'll let Kevin give you maybe some of those numbers. But strategically, we have decided that we're not going to be chasing as a general contractor, as an EPC contractor the full projects on a gas-fired generation. And while we still think there's opportunities out there for us to provide specific packages around either the electrical work or the piping work or the boiler erection, to take on a whole project is something that is no longer in our strategic plans.

As part of the modification to the contract and our agreement with our client, some of the work that we had anticipated we would complete, they will be doing with -- in a direct subcontractor situation. So that's the reason for the backlog reduction for us and the fact that, that work has come away from our responsibility and gone to our client's responsibility also minimizes the amount of time that we're going to have to spend on the job site.

So while we may have some folks on the job past January 2018, the majority of our work will be completed by Christmas of this calendar year. And then -- so the balance of the work in that segment evolves around our high-voltage business where we're doing a lot of substation work. We do transmission and distribution work. We provide other electrical services into generating facilities, whether it's repair and maintenance or small capital projects, or I think we announced a few months ago we're providing all the electrical services on a combined cycle job at PS&G in the Northeast.

So the balance of those services are -- the demand in our markets continues to be very strong. We've got a very strong brand position there. So our expectation is to continue at those levels and grow those levels, frankly, strategically as we expand our service offering outside of the Northeast, and we're already starting to see some pull into the Midwest for us to do that.

So John, when you look at the fourth quarter, our revenues for that segment were $100 million, that's going to be a high mark. I wouldn't expect us to see that level of revenue volume as we -- in any quarter in fiscal '18. And I think you'll see a higher level of revenue as we complete that project in the first half of the year. And then it will get down to a more normal level. And as John said, the ongoing business has been more than, somewhat more than half of the revenue in that segment. So you should expect quarterly revenue of -- it could range from $50 million to $70 million depending on what projects are going on.

Perfect. [This one] for Kevin. How much was the adjustment in scope to the backlog number? What was that number?

It was $79.2 million, I believe.

$80 million? All right. So I guess one other -- one final question then is, you're looking for growth in revenue year-over-year. You're going to have a drop in the second half revenue from the Electrical Infrastructure business. I think you've kind of indicated that the turnaround business is not going to be particularly strong recently, in part due to delays from Harvey in the oil & gas side of the business. Can you kind of reconcile your confidence in the top line growing year-over-year, given some of these puts and takes you've kind of put out there?

Right. I would tell you that I think that the Electrical Infrastructure piece of the business will be up slightly from what would be traditionally our business. If you take out the power generation activity, the Oil Gas & Chemical and the Industrial businesses, we think we'll be up significantly. Not only from the impact of our expanded engineering capabilities and the new markets that bring. But also, we're seeing a lot of strength returning in our mining and minerals business.

And then from a storage perspective, while it's been sort of flat because we haven't been able to replace the Dakota Access project completely, but we have replaced it with several projects that we're working on currently. And some of the larger projects that are in our current pipeline that we hadn't expected to bring into backlog in '17, we're nearing the point where we think some of those projects will enter backlog in this calendar year. So we'll start to see some more growth in the back half.

The other thing is in the -- I didn't want to mislead you on the turnaround business. So what we're seeing in the turnaround markets based on the bookings and expectations from our clients is both the fall and the spring will be some of the strongest turnaround seasons that we've had for a couple years. We're just being cautionary on Harvey, that it could delay the start of some of the turnarounds that we're working, that we've got planned to do in the fall. It could move from our second quarter into our third quarter, or it could move later into our second quarter. But we don't see any of those getting permanently delayed. It's just kind of a moving around of those revenues. So our expectations this year on a consolidated basis through the course of the whole year that our turnaround business will be a lot higher than it's been in the past few years.

Our next question is from Matt Duncan of Stephens.

So just sticking with the question on guidance. I'm hoping maybe you can give us a little more comfort around the storage business. I know you've been expecting, John, these awards to come in. For some time they've been slow to materialize. And I guess they haven't yet, because your backlog is still at a really low level there. Where does the degree of confidence come from, that these things are about to go into backlog? And when they do, how big of projects are we talking here? I mean, are these multiple hundreds of millions of dollars? Are these some of the large type? Or what type of stuff are we looking at?

Well, we have just our traditional tank business, which has seen a very strong demand for just the construction, engineering and construction and fabrication of our normal flat bottom tank business, and that's going on a little bit of everywhere. We're seeing on full terminal projects, which is where we have strategically seen the growth in our business. Those are projects anywhere from, say, $10 million to $250 million kind of projects. And so 1 or 2 of the larger ones, obviously, will make a dramatic change in our backlog in that segment. And I will tell you that we are -- hopefully it's because of our strategic shift and the things we've done to our business. But I think it's also because of what's going on in the market. We're seeing a very, very large demand for full terminal applications in storage, whether that's crude, whether that's refined products, whether that's chemicals, whether that's LNG for export, or it's small-scale LNG for export or for fueling stations. And so there's just a very large demand.

And I think a lot of the people were -- that are looking at these projects, and they're not all developer projects. Some of them are by very well-funded, special-purpose companies, they're by blue chip companies that we do business with all the time. But I think they're all being a little bit more robust in their process of getting to financial close, making sure their offtake agreements are signed up, make sure they got the right financing in place, make sure all their permitting is completed. So there's just a little more diligence that we're finding around getting these projects to completion than maybe we would've seen 2 or 3 years ago.

So we think that the market demand's out there. We think our position in the market is really, really good, and that based on some of the things that we've been working on -- as I mentioned before, we're in some final negotiations on some contracts on some storage-related projects. And so that's kind of why we have said that we feel the back end of our year will be stronger than the front end as we bring these things to close, and we're being just probably a little bit more cautious on the timing to get those across the finish line.

Okay. That makes sense. And in the Oil Gas & Chemical segment, you've obviously had a very nice progression of revenues there throughout fiscal '17. Can you talk about sort of what you think the trend line is going to be there in fiscal '18? Is that momentum going to continue? And what kind of revenue do you think that segment is capable of producing this year, if you see turnaround work start to come back? I assume that you're getting access to work you didn't have before, after the Houston Interests acquisition. What is that segment now capable of from a top line perspective?

So we could probably have a run rate of somewhere over $110 million per quarter at the back end of the year. We're seeing -- we're getting access into gas processing, cryo plants through their capabilities. Like I said, we're seeing more strength in our turnaround business than we expect. Tempered by Harvey's impact, we're expecting a higher turnaround season in the spring that's even higher than what we were expecting as an improved turnaround season in the fall. And then there's a lot of other opportunities for us in sulfur processing. We're seeing a lot of that work as a result of the expanded Matrix PDM design capabilities coming in. So we expect, through the course of the year, for our revenues there to continue to trend up.

And it looks like we have follow-up questions from Tahira Afzal of KeyBanc Capital Markets.

I guess as a first question, follow-up question, John, when we were sitting around this time last year, there was a lot of enthusiasm that we were going to see a record spring turnaround season, and that didn't happen. And I guess, is there something different in your conversation from where you are in terms of really the process of turnaround that is giving you this confidence?

So I would tell you that from the fall perspective is that we are fully booked. And from the turnaround work that we've seen and some of the planning work that we've done through the spring, although it was light, we can tell the intentionality from our clients is that the turnarounds that they're going to do will have larger scopes associated with them than we've seen. So, while we've been active in a turnaround market for the last couple years, the amount of money that was being spent was significantly lower than what we're used to.

So based on the bookings that we're seeing for our turnaround services, based on our appreciation for the environment that our clients are in, all lead us to the conclusion that our turnaround markets will be stronger this fiscal year than they were last year.

Got it. Okay. And then, John, to the extent Magnolia LNG gets pushed out, let's say, another year, can you still meet the lower end of your revenue guidance?

Yes, yes. So Magnolia is an opportunity, is a positive opportunity for us if we were selected to be the storage contractor for that project. But it's not anticipated as a project in this fiscal year.

Thank you. That concludes our Q&A session for today. I'd like to turn the call back over to Mr. John Hewitt for any closing remarks.

Yes. Thanks, everyone, for listening to this call. As a final note, I just wanted to ask you not to judge the performance of our people and the business on the last 12 months. We have a 30-year history of growth and successful operations built on our core values. These core values are the bedrock of our culture. They're essential to every decision we make, and it's by living our core values that we have earned the trust and respect of our employees who believe Matrix is a great place to work. Our customer base, and that includes some of the largest blue chip companies in the world, and our shareholders. So I want to thank you, again, for your continued trust and support, and I look forward to speaking with you all in the near future.

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