MTRX
#Yes, a couple things there, Marty.
The ---+ this doesn't necessarily make a trend, but over the past few weeks, we have seen an uptick in maintenance demand with some of our clients.
Right now we don't have any long-term visibility on what that means for capital projects.
We are currently in a small turnaround and ---+ for one of our clients in the Midwest on one of their iron-making facilities.
And so we are ---+ we think maybe we might have hit the bottom here, and that with the tariffs, the price increases in flat roll and hot band, that there's an opportunity here that the market may be in an uptick going forward.
But we are continuing to be cautious, and make sure we are being as efficient as we can with our cost structure.
Yes, I think we are coming out of the winter.
Progress is on our plan.
We are closing up a lot of the underground, providing more clear and free access to the site.
We have completed the concrete work on the ---+ both combustion turbine foundations.
We have all the main forensic pieces assembled.
We are in the process of the final core of the tabletop on the steam turbine.
Building structural steel is 50% complete in round numbers.
Our warehouse building and control building is well in progress.
Started work on the substation and switch yards, I think within the week.
And so overall, now, like I said we've come out of winter, I think progress is accelerating as we had anticipated.
And we are working very closely with our client as we move down the road.
Well, let's take them a piece at a time.
So the Oil, Gas and Chemical side has been a ---+ is nearly as long-term legacy part of our portfolio as the storage part, dating back into the 1990's.
So we ---+ while we think we've got opportunities from some operational improvement in our Oil, Gas and Chemicals segment, we think on the union side, we are actually opening up more opportunities there for us in some of the Midwest and East Coast refineries.
And then on our nonunion side, where we've got a very great brand position, where there's opportunity to move geographically into the Gulf Coast.
And we've made some ---+ we frankly have made some management reorganizational changes there.
So we are pretty comfortable where we are.
I mean, you know, the markets ---+ the market is not as strong as we'd like it, and things are not coming to fruition as quickly as we would like.
But we've essentially been fairly flat over the last five years in that segment.
And we are just not getting the growth out of it, and have had trouble, a little bit, on the bottom-line on some of the earnings.
This quarter was affected by this project that we had in our upstream segment actually that we've had ---+ as <UNK> mentioned, we had to take a reserve on.
So that's had a little bit of what was weighing down the quarter.
So, Oil, Gas and Chemical is still in a long-term future part of our business.
We still think there is growth opportunities there for us.
On the Industrial side, we've got ---+ basically got three components of that that's been driving that segment over the last two to three years.
You've got mining and minerals, which is weighted to the copper industry.
You've got iron and steel, which is in the major integrated steel producers of ---+ and our primary clients there are US Steel and ArcelorMittal.
And then fertilizer work.
So we take those a piece at a time, and the fertilizer work is really a project and not an operating unit.
And it just fit into that segment.
So those resources, as we wind down on that project, frankly, those resources, those people and equipment, those are moving into other parts of our business into other segments.
So, for instance, a gentleman who was the construction manager and some of the administrative people are moving from those projects up into our Dakota Access projects.
And you look at the iron and steel business.
So we are not ready to exit that business.
We've got a very, very strong brand position there.
You know, probably in excess of 30 years of experience working in that market.
While that market is becoming tougher and tougher because of our clients' economics, but it's ---+ it can be a cyclical business and you can have these downturns.
So, the goal for us there is how do we maintain our market share, maintain the strength of our brand, make sure that we are being as efficient as we can in our cost structure, and deploy any of those resources into other local markets within the geography that we provide those services.
And those are things that we are doing as we speak.
And then, thirdly, in the copper markets, again, have had ---+ we've been in that market about two-and-a-half, three years; have had some really phenomenal financial performance.
Frankly, in one of our US, was one of the highest ---+ delivered some of the highest margins in the business.
And again, it's a business that can be a cyclical business.
But we are able to take some of those employees and resources, and dispatch them into other projects that we have going on in the business to try and make our costs ---+ the costs have been associated with that region as effective as we can.
So again, we've got people from that ---+ those operations up into our Dakota Access projects and into some other things that we are doing around the country.
So, we are not prepared to exit any of those.
We are being mindful.
We are watching our costs.
We are finding opportunities to move people around to get the highest utilization we can out of all of our employees.
And we're just going to continue to watch it.
So, I think, first of all, for Oil, Gas and Chemical, we've been running, I'll say, averaging 8% the past few quarters.
And we would have been slightly below that this quarter, excluding the upstream charge <UNK> mentioned.
So if we can increase volumes 10% to 20%, we'll get to where we are fully recovering and get back to that level of full absorption.
And that would get us back in that range of 10% to 12%.
So we just need more turnaround activity to materialize.
That's been slower than we've expected.
And that will help us get there along with the proactive cost measures that <UNK> talked about.
On the Industrial segment, you know right now the majority of the work is maintenance work.
So, we are probably at the lower end of the range we gave at the beginning of the year, which was I believe 6% to 8%.
And that's the range we are probably looking at for the near-term.
If we can get some free-up of money that goes toward capital projects, that's when you'll see us get back to 10% in that segment, and that we've performed at the past couple of years.
Yes.
So if you look at the first couple quarters of this year, we were in the low-120's, I believe, in the segment.
We bumped up to above [130] this quarter.
I think that will continue to increase.
I think we should get up to [150-plus] a quarter for the next ---+ for at least the next three quarters.
No, I don't think ---+ we've had some of the ---+ for instance, in our storage side of our business, specifically in the flat bottom tank ,have had some of the heaviest bidding environment and RFP environment that we've had in the year.
So, I think our clients are just being more deliberate about where they are spending.
We still see some very large tank terminal opportunities in the marketplace.
But again, the deliberation to get those into the ---+ activated is just taking a little bit more time than normal or what would've happened a couple of years ago.
And we are ---+ as we said, we are very active in sort of this gas liquids and LNG market.
And it's doing a lot of feed work, looking at a lot of projects, the small to medium scale, which really fit our sweet spot probably more so than these big LNG export terminals, where there, we were going to be a subcontractor to build the tanks.
On these smaller facilities, we can provide the full terminal capability and not just the storage.
And where the bigger EPC guys have really got to take a step down to get to be in a more competitive mode against these ---+ some of these smaller gas-related projects.
So, bidding activity is very, very ---+ is very strong.
And really in the storage and electrical segment, both in electric, both in power gen and in power delivery.
It's just, in storage, it's just taking a little bit longer time to get that stuff into the backlog.
And one thing you ought to consider here is that if you think about a project lifecycle, it takes a period of time from the time the customer says, hey, I'm going to go forward with this project, to the time that project gets awarded and work actually starts on that.
So there's always a delay there.
Yes, I think so.
And I think the ---+ what we are seeing, if you think about big chunks of backlog coming in and out of the business, certainly one of those would be power generation.
A lot of what we're looking at right now are not the full general construction opportunities.
We are looking more at specific packages on those facilities, whether they are all the mechanical work, HSRG erection, the electric piece.
And so those projects are all moving down the timeline.
But again, as <UNK> said, in the power generation market, I mean, it takes months to get those projects bid and negotiated and into backlog.
Clients have to ---+ developers and clients have to win their ability to enter into a power district and they have to win those awards.
And they've got to award the projects to their contractors.
So, it just takes time to get that in.
I mean, we're very confident in that segment.
Not only in our ability to continue to build some backlog on the generation side, but frankly on our delivery side, where we do substation work, transmission and distribution.
We are ---+ it's not transparent to you guys on the phone, but it's ---+ we are having a very, very strong year there.
And they are frankly overachieving on that piece of our business compared to what we had thought going in.
And plus there's a lot of growth opportunity for us to move that model, as we said; not only expand our market share in the Northeast but to move into the Midwest and up into Ontario.
So, those are focus areas for us for growth and we see those opportunities.
Those opportunities are out there.
So I would say that if you looked at that change in EPS guidance, 25% to 35% of that change is just related to the third quarter ---+ you know the $0.08 of charges that we talked about, a little bit of under-recovery.
And the other portion relates to ---+ while volumes will be higher, they weren't going to achieve as high a level as we thought they were, previously.
No, it's fundamentally topline, which also has an impact on the bottomline because of the potential underabsorption issues.
And so we've got ---+ and it's a combination of a lot of things.
So we've got projects that we've had a high ---+ that we felt we had a high likelihood to win and start working off in the fourth quarter, that we either didn't win or the projects were delayed by our owners; or we had had an assumption, for instance, in our Industrial segment, that there was the opportunity for improvements in some of those businesses that we are just not seeing at the rate that we thought they would come back.
So it was a combination of a lot of different things.
But it's primarily a topline-driven issue, not a known performance issue that we are having on any of our backlog work.
Welcome.
So when we came into the new year, we had anticipated adding, on the electrical generation side, additional work that would be booked and worked off in the back-half of fiscal 2016.
And that didn't happen.
And that wasn't necessarily because the project ---+ when the projects went away, it's just either they moved or we were not successful in that bidding.
And so there still is plenty of opportunities out there.
We are actively bidding today as we speak.
You know specifically two, three projects on the East Coast that we feel very good that we are going to be able to add pieces and portions of those projects into our backlog in fiscal 2017, but they just didn't materialize in this year like we had expected.
No.
I think again, it's ---+ some of it is the dynamic with the client base on when they are taking projects to market.
Some of it is a little bit of dynamics change in the execution of these projects with the major EPC contractors that they are looking at instead of being a partner, and taking more of a subcontractor relationship with folks like us.
And so that doesn't change the competitive dynamics.
It does change the execution dynamics for us and how they think about some of these projects.
So, you have some owners like a TransCanada, for instance, that wants to play the EPC contractor.
They will go hire the engineer, they will go do the procurement of the major equipment.
They'll go hire a general contractor.
And then you have other clients and developers in this market that want ---+ fundamentally because they need the third-party nonrecourse financing support, they want to go to a full EPC contractor as a single source of supply for them.
And so, depending on what type of those projects are that are coming to market at the time that we are ready to bid them, can have an impact on our ability to win, how big a piece of a single project we can win, and the timing of what that gets into our backlog, and when it can start to roll out, depending on the lifecycle of the project.
So those dynamics that move around through that industry, I would tell you are pretty normal.
And it's just something that we, as a service provider there, that we've got to deal with on a month-over-month basis.
Well, I think probably you've got a little bit of everything depending upon who the client is that the turnarounds that we are doing ---+ so you talk about turnaround market, and we, I think, we had told you guys on the last call that we had 23 turnarounds that we were contracted for through the course of this year.
I think the majority of those we are still intending to happen within 10%.
But the size of them have been not as big as what we have done traditionally.
So, I think our clients are wanting to get back online quicker, that they are holding down their spending on the repairs where they may ---+ are doing what they need to do but not what they'd like to do.
And so we still fundamentally believe in our turnaround and plant maintenance teams think that they are pushing a lot of the maintenance work off.
And ---+ but we don't see this work as going away.
It's just a timing issue.
And so we've got to make sure we stay in position with our relationships with our clients that we are there when that happens.
And so it's just something again that we are going to have to deal with in this market environment.
So I think you saw probably Frontier release their earnings this week or the end of last week and they didn't have the best of quarters.
And a lot of that is driven by ---+ for them, anyway, and their markets that they serve, was driven by an oversupply in refined products.
So naturally, of course, that's probably affecting it.
And we had some turnarounds with them and we do maintenance work with them.
So, that, of course, is going to drive an impact into their spending plans.
Yes.
It was two projects.
The combined charge was $2.8 million in the quarter.
These were ---+ both were reserves on projects that are still open.
So we are not going to get to the point where we are talking about the individual charges, just because we are still negotiating the final closeouts on those projects with the customers.
The one in Oil, Gas and Chemical was an upstream-related project.
So, that's probably not too unexpected tough environment there.
And on the Industrial, that reserve, we are hopeful that we can improve that.
But that was our ---+ that's our best estimate at this point.
We don't project, into our forecast, increased scopes on our turnarounds.
We've got a majority of all of our turnarounds we were involved in the planning with our clients on what the scopes were going to be.
Those are the man-hour forecasts we use to feed our forecast.
And so if there is opportunity for turnarounds to grow, we really won't know that and won't take account of that until it actually happens and we are in the middle of it.
And so in the third quarter, while we had some turnaround activity, there wasn't really any kind of great growth rate in those turnarounds.
Right, so this is probably less about refinery turnarounds and more about ---+ there's a lot of things that are in our Oil and Gas and Chemicals segment.
So there is also work that we do in some work we actually do in chemical plants and some processing facilities, that there's capital work involved that I had mentioned earlier, that we had a high percentage in our forecast that we were going to be able to win that work and begin to execute it.
So for instance, in ---+ on the East Coast, one of our clients on the East Coast, we had a ---+ they're spending a tremendous amount of money.
We had a couple of key project in our go-get that we thought we would win and to get start working some of that off in the late third, early fourth-quarter.
And those projects, there was two or three of them.
One of them got pushed out just because of timing of the execution in the overall facility.
The other ones we didn't ---+ the other two we didn't win.
They went to the ---+ as we like to say, the successful low bidder.
So they ---+ the person might have won the work, but they may not make any money on it.
And we are not in the business to chase numbers.
So we are still on the ---+ this is supposed to be a profit-making operation so we are not ---+ we aren't going to go do work for nothing.
So I don't want to mislead you there.
All the changes in the topline in Oil, Gas and Chemicals are all related to light turnarounds.
So there's other things in there besides turnaround market that can restrict our revenues.
So we are still actively looking at M&A opportunities, both for things that we would pay for with cash as we've traditionally done, and there's opportunities where we might have to take a different position on that, if it's something very strategic to build our business.
Plus, we've got, especially through the first half of 2017 and into, frankly, the fourth quarter, we are really ramping up on our two major projects.
We want to make sure that we are in a good liquidity position to provide the working capital we need for those projects.
And so to some extent that also would restrict our desire to go invest a lot of money in the repurchase of stock.
So it's, again as we ---+ as <UNK> said in his opening remarks, we are going to be opportunistic about when and how much stock that we will repurchase.
And so, there's no reason to believe that we wouldn't get back into the market here at any time to go back and purchase some stock if we thought we were excessively undervalued.
So, we'll watch that.
No.
I think the costs are primarily in.
I don't expect any additional lagging acquisition costs.
And the acquisition has gone very well.
The products have been very well-received in North America.
So we are maintaining ---+ the initial short-term strategy there is to maintain our ---+ the legacy company's international market and presence, and bring them into North America where we can take some of our ---+ leverage our brand and our market presence and our client contacts, and bring these, what we think are some of the highest quality products into the industry, into the North American market.
And we are finding a really great acceptance by our clients, both existing and frankly some new clients, that are really interested in our products within their storage facilities.
And so we've been ---+ within two ---+ within the last two months, we've got ---+ we bid over $40 million in tank products into the market.
And so it's ---+ I would say it's exceeding our expectations to date.
The individuals that we've added onto the team through the acquisition are excellent.
Personally visited our engineering group in Australia and our manufacturing group in Korea in March.
Exceptional people, very bright, great systems and very focused on being part of the Matrix organization and delivering great results, and have the capacity for us to plug in additional sales opportunities.
You also see disclosure in the 10-Q that will be filed today or tomorrow that provides more information on Baillie.
Just a little tidbit from that disclosure ---+ the revenues recognized on that acquisition in the first couple months were $3.5 million, producing operating income of $0.7 million.
So, definitely off to a good start here with us.
No, I think we are still ---+ the Baillie thing wasn't necessarily an international focus.
It was just that's where we found the best product provider.
We are going to be more focused in the US and Canada here in the short-term.
But that's not to say that we would not look for a ---+ or be interested in a company that is US-based that might not be doing some work outside the United States or Canada.
But as far as going into a foreign country to look for an acquisition, I would say today that's not on our list.
Thank you.
Yes.
So we, actually in the quarter, had an award with one of the midstream companies there to add ---+ I'm not sure of the quantity of the barrels, but I think it was three or four tanks into their terminal out in Cushing.
We're doing some other work out there for a few other clients.
We've actually got a couple proposals in-house for some major additions into Cushing by both existing and some startup midstream companies.
So there are still people interested in adding storage capabilities and blending capabilities out in the Cushing storage depot.
And so we are pretty upbeat about that opportunity.
Yes.
Yes, we will do that sometime earlier than where we had traditionally done it, once we get through our budget cycle here and get this year closed.
But probably sometime in July.
You're welcome.
Thanks, everybody, for listening in for the great questions on the business.
We continue to be extremely bullish on our markets and our business in general.
We think we are doing some really great strategic things with the Company.
Very exciting time to be at Matrix.
And additionally, would encourage everybody to take notice about June being National Safety Month, and think about that in your ---+ both your working and your professional lives.
So, thank you, everybody.
And we'll talk to you next quarter.
