Q4 2020 Matrix Service Co Earnings Call
Well 2020.
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Good morning, and welcome to Matrix Service company fourth quarter fiscal 2020 yearend earnings call.
On today's call will include John Hewitt, President and Chief Executive Officer, and Kevin Cavanah, Vice President and Chief financial.
Presentation materials, we will be referring to during the webcast today can be found Andrea.
Indications on the Investor Relations section.
Service company Dot Com website.
Before we begin please let me remind you then 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 1995.
Actual results may differ materially from those indicated by these forward looking statements as a result at various factors, including those discussed in our Android report on form 10-K for us.
Your ended June Thirtyth 2020.
Subsequent filings made by the company with seating.
The company utilized non-GAAP measures reconciliations won't be provide antares pressingly <unk>.
I see filing and on the company's website I will now turn the call over to John Hewitt, President and CEO Matrix Service company.
Thank you Kelly good morning, everyone and thank you for join Us.
Well I'd again like to once again express my thanks to all of our employees, there's been a very tough environment to work in our team has truly outperform.
Q shouldn't has not suffered in our strict adherence to health safety protocols hasn't sure first priority wellbeing our employees.
We're reacting quickly to the health safety conditions brought about by nine change to protect our employees suppliers and clients.
We also made significant changes to our organization organizational design and cost structure to improve our business performance and finally, recognizing a generational transformation. The pandemic has and will continue to have in our markets economy and our lives we began to reshape our end market strategy defined growth opera.
Trinity's sustainable work activity and improved bottom line results.
Absolutely proud of our leadership teams.
First employee base as they demonstrate its flexibility resolve innovation and foresight in a phase of the most challenging global market conditions of our time.
Oh, Kevin will review the details of our fiscal 2024th quarter full year financial results I'd like to share my perspective, it's on the year as well as more about what we see for the future.
[music] ESCO 2020 was a challenging year for matrix service company, our industry and our clients throughout the year. Despite significant challenges matrix service company achieved strong direct margin performance across most of all operating segments. We grew our market share and LNG peak shaving facilities about green.
Gas processing and renewable energy like hydrogen and ethanol storage strengthening the matrix brand in these markets further we continue to dominate in crude related storage terminal markets.
We also made important business strategic decisions to better position the company for the future.
Restructured our power delivery business, which led to improved performance solid direct margin results in the fourth quarter. Despite the dramatic impact of covert 19 in our northeast service territory.
The organizational restructuring of our engineering subsidiary, resulting in a bulk plant earnings as a supported internal APC projects for our construction subsidiaries as well as independent third party contracts in various markets.
Finally, we exited the artist steel business in United States, eliminating 70% of our annual industrial segment revenue, but also substantially reducing the risk related to the cyclical nature of this business, which typically produced the lowest margins enterprise wide and also demanded the highest working capital in our portfolio.
All these changes were positive and are delivering as planned. However, the full benefits will be reflected over time due to the severe end market impacts created by the cobot 19 pandemic.
This pandemic caused severe energy demand destruction, which affected many of our end markets the environment and our end markets has been volatile we experienced delayed project awards and starts as well as significantly reduced near term capital and maintenance spending by our clients.
Most of our capital projects that were already in process continued maintenance and turnaround work was severely impacted.
He activity also slowed considerably as clients navigated the turbulent energy markets.
Just on pandemic related and overall economic restrictions finally, both delays and logistical issues are present as our clients are focused on implementation of new health and safety protocols.
Despite the turbulence in fiscal 2020, I want to highlight accomplishments that not only demonstrate our control of near term outcomes, but have also set the table for a strong future.
Fiscal 2020, our employees achieved strong safety performance, but the consolidated total recordable incident rate of 0.50, well also implementing and adhering to increased health and safety protocols to help mitigate the spread of coated 19.
Our projects I teams implemented specific health safety protocols and in doing so were recognized by multiple clients, providing a comprehensive approach that allowed us to return to site often ahead of any other contractors.
We took a heightened approach to diversity equity and inclusion across the company as we expand buys training.
Data transparency engage our communities and set expectations across the organization. Thank you service company and its employees to take seriously our role in our communities to deal with the social and racial and justices that we believe our embedded in society, we will do our apart as business leaders and community supporters.
Perfect positive change.
Recognizing the critical importance of environmental social and governance to the overall company performance and long term strategy. We also commenced formalization of our E.S.G. reporting framework, but oversight by the nominating and corporate governance Committee of our board of directors.
The company also quickly and efficiently streamline the business and reduce costs as a result, or the reduce business volume the uncertainty regarding the recovery from coded 19, and the transformational changes happening across our markets. We performed a comprehensive cost structure review.
The outcome of that review reduced our plant overhead costs by approximately $45 million or 18% through reductions in force.
The nation of planned headcount additions closure or consolidation of facilities organization consolidation reduction of capital spending and significant reductions of other discretionary spending including travel.
Well these reductions were significant and many of the permanent we do not believe they impact our capabilities or ability to grow our revenue and execute work.
In fact, while we have reduced cost in many areas, we have increased our investment in other aspects.
Yes business and corporate development. For example, we have created a new position in corporate or Vice President of business development, and Chief strategy Officer, which has been filled internally by subsidiary executive disposition will coordinate all the company sales and strategic planning efforts in order to bring the full strength and diversity of the editor.
Price to the market we expect these changes.
Will contribute to a more competitive expanding and profitable business into future.
[noise] our work on a number of very important infrastructure projects continued including E. D. C execution of the Piedmont LNG facility for Duke energy construction, the first ever alkylation unit in the U.S., providing for a non hazardous and environmentally friendly alkylation process.
Chevron Salt Lake City refinery.
Turnkey EGPC work on care and Wildhorse marketing terminal Cushing, Oklahoma.
Completion of VPC work on expansion of motor Midstreams Ingleside export terminal, which included 13 additional storage tanks as well as marine dock expansion to accommodate the lccs.
Startup of the natural gas reliability project using stored LNG for southwest gas in Tucson, Arizona.
Construction continued on the walkie thermal backing chambers Littleton, Colorado.
We're also awarded EGPC contract on another LNG peak shaving facility in the Western U.S., which we announced in late May 2020, further strengthening our brand position in this growing market.
So we were selected for feed work on other LNG related infrastructure projects and overall, our anchoring our position as a leading EGPC contractor in the small to mid scale LNG market.
And we were awarded several storage projects in the growing renewable energy space, including hydrogen biofuels renewable natural gas thermal energy storage, which are additional additional strategic opportunities for our dominant FTC storage brand.
As discussed earlier, our teams improved execution in our restructured power delivery business. That's a direct margin line as a result of the performance improvement plan implemented earlier in the year volumes continued to be like driven mostly by the cobot 19 impact on the northeast regions, but as the pandemic lets just grip goodbye.
And with our enhanced business development talent, we expect volumes to increase this area. The business remains a growth focus for the company, which we will achieve primarily through acquisitions.
The exit from Iron and steel business is also substantially complete and as we discussed while painful in the short term. This exit should improve long term margins portfolio cyclicality and open the door for more focused growth opportunities and other sustainable businesses.
In summary, we reorganized portions of the business cut over has closed and downsized offices added key positions and streamlined operations to align the company's cost structure, what our near term expectations and doing so we have created an 18% savings in our planned cost structure, which are not only helped to soften the impact of the current.
Permit, but more importantly prepare the organization for growth opportunities in electrical downstream markets and renewables and provides broader engineering services that will support a better margin profile for the enterprise in the long run.
I guess the market backdrop as bad as we have ever experienced the actions we took not only allowed us to come within a penny breakeven adjusted earnings in the fourth quarter, but also set the table for strong future of growth. We're in a strong position to take advantage of growth opportunities expand existing services and enter new end market.
It's to meet evolving.
While we business of energy.
Let's go and industrial clients.
Moving forward as we ended the fiscal quarter fiscal 2021, we're beginning to see improvement in some of our markets maintenance volume chart route planning and smaller capital project bidding activity or all picking up.
Larger capital project bidding starts and awards so slow to develop that said we are working to closure on a couple of significant opportunities in the back half of the calendar year.
We expect revenue in the first half of fiscal 2020 wants to be relatively flat, but we are forecasting the back half of the year to show improvements in revenue and margins based on the opportunities we see and the timing of awards, we should ask exit fiscal 2021, both a book to bill above one zero.
As we previously announced results in fiscal 2021 will be reported under three new operating segments. These are utility and power infrastructure process and industrial facilities storage and terminal solutions.
Consistent with industry practice and in connection with the segment change corporate costs will be presented separately from the operating results of these three segments.
This new reporting segmentation is designed to provide greater perspective into an existing and new end markets. The growth areas, where we are strategically focused and to better represent our long term vision.
We believe there are significant opportunities across each of our new operating segments.
Utility power infrastructure segment includes traditional work and power delivery in power generation, which will benefit from the significant demand for upgraded North American electrical infrastructure as well as engineering procurement and construction services for utility grade LNG peak shaving facilities across North America, where are we will continue to expand.
And our industry, leading position in this portion of the clean energy market.
We also intend to expand our geographic reach provide do services for demand for renewable power grid upgrades and enhanced connectivity as well as battery storage.
A process and industrial facilities segment will accrue conclude front end engineering design or feed studies as C maintenance and repair work across a variety of industries, including midstream natural gas refineries chemicals, biofuels fertilizer and sulfur mining and minerals and aerospace.
Our storage and terminal solutions segment will include work in storage terminals. The import export infrastructure company will benefit from the delivery of existing services as demand for crude oil rig crop recovers across North America. Additionally, the opportunities for continued growth in the demand for cleaner energy sources like LNG and hydrogen are significant.
And we'll be continuing growth area for the business, both domestically and through international expansion in select markets.
As the company continues to provide critical infrastructure needs to support our clients businesses. We're also increasing resources focused on providing services to the renewable energy industry, including hydrogen biofuels renewable natural gas and thermal energy storage.
We are already engaged in many of these areas to feed studies detailed engineering and construction.
In the long term the company will continue to grow its non crude based businesses such that our other offerings and gas LNG Ngls electrical renewable energy chemicals and other process related industries represent an increasing share of our overall business portfolio.
This is not to say the covenant will walk away from its industry, leading position in crude storage or refinery turnarounds maintenance and capital projects or stop looking for growth opportunities only that we will be less reliant on it in the future compared to the balance of the portfolio.
Today crude related activities represented an increasingly smaller part of the enterprise portfolio with approximately 40% of the business in this market, we will strategically reduced this percentage in the future.
Now I'll turn the call over to Kevin to discuss fourth quarter and full year results.
Thank you John.
Before I discuss the operating results I'd like to cover a couple of unusual items included in our income statement.
As John discussed fiscal 2020 has been a turbulent year for the business.
During the first half of the year much of our business was performing well.
However, in the middle year, we announced our exit.
Of the domestic iron steel business due to a downturn in our outlook for that business.
Which led to an impairment of $13.6 million.
We also announced an impairment of 24.9 million related to the underperforming power delivery business within the electrical infrastructure segment.
At that time, we commenced a business improvement and restructuring plan to address the operations of the power delivery business and to adjust our cost structure related to the exit.
From the Iron and steel business late in the third quarter as cobot 19 escalated and impacted our entire business, we expanded our cost reduction efforts to cover the entire company.
We are substantially complete with these restructuring activities during the year.
We incurred $14 million of restructuring costs, including 7.5 million in the fourth quarter.
To help understand the impact of the impairments and restructuring to the operating results.
We have provided this table that reconciles between our reported GAAP EPS and our adjusted EPS.
For the fourth quarter, we produced a diluted loss per share up 22 cents.
Excluding the restructuring costs, our adjusted loss per share was one cents on revenue of 196 million.
Considering the significant reduction revenue volume in the quarter as the result of Koeppen teen environment.
Using near breakeven results was a significant achievement.
That was the result of strong project execution and significant cost reductions.
For the year, we produce a GAAP EPS loss.
Per share of $1.24 cents, excluding impairment charges and restructuring our adjusted EPS was a positive 40 cents per share on revenue of 1.1 billion.
Now I will move to the operating results discussion.
Revenue for the fourth quarter ended June Thirtyth, 2020 was 196 million compared to 399 million in the same period in the prior year.
This was our lowest quarterly revenue since the fourth quarter of 2012.
Primary reasons for the revenue declined was the impact to cope with 19 and the exit of the iron and steel business.
Consolidated gross profit was 19.2 million for the fourth quarter compared to 43.7 million for the fourth quarter last year.
Gross margin for the fourth quarter of 2020 was 9.8% compared to 11% in the same period in the prior year.
We appreciate the efforts of our engineering operating the craft personnel in this tough environment as they produced strong direct margins in all four of our operating segments. These margins. We're in we're in excess of our normal ranges.
However, even with the significant cost reductions to historically low revenue volume resulted in under recovery of overhead costs during the quarter.
Selling general general and administrative costs were 19.7 million in the fourth quarter 2020, compared to 26.3 million in the same period in the prior year.
The decrease is attributable to.
Incentive compensation costs in the prior fiscal year and current year savings from the previously discussed cost reduction efforts.
On an adjusted basis EPS was a one cent loss in the fourth quarter of last year. The company produced EPS of 47 cents.
Project Awards in the fourth quarter totaled 227 million.
Resulting in a quarterly book to Bill of 1.2, and a June 30 backlog of 758 million.
Moving to the segment performance.
Storage solutions segment Jimmer generated revenue of 123 million in the quarter as new project opportunities were delayed in this environment.
In the prior year revenue was 149 million in the fourth quarter.
The quarter gross margin for storage solutions was 10.7% as good project execution was somewhat offset by under recovery of overheads due to the lower revenue.
While many project awards were delayed the company was able to successfully book another LNG peak shaving project as a result of the company booked 179 million in New Project Awards.
Resulted in a quarterly book to Bill of 1.5.
At quarter end backlog of 577 million.
Now for the oil gas and chemical segment, which was significantly impacted by the current environment.
Oil gas and chemical revenue was only 35 million in the fourth quarter compared to 76 million in the prior fourth quarter.
On the positive side segment produced gross margin of 14.4% on excellent project execution that more than offset the negative impact of lower overhead recovery.
Project Award activity was also impacted by the current environment quarter Awards work 24 million, resulting in a 0.7 book to Bill backlog at the end of the fourth quarter of 2020 was 121 million.
The coven 19 pandemic.
Also impacted the electrical infrastructure segment as fourth quarter revenue was 23 million compared to 54 million in the same period in the prior year.
Oh volumes continued to be below expectations overall project execution and direct margins have improved and were within our normal expectations.
However, we did not fully recover our overhead costs in the quarter due to the low revenue volume, resulting in a gross margin of only 4% for the quarter.
Project Awards totaled 15 million in the quarter, resulting in a 0.7 book to Bill quarter end backlog of 35 million.
The industrial segment now consist of work on thermal backing chambers mining and other industrial projects in the fourth quarter of 2020. The segment revenue was 15 million compared to 120 million in the same period in the prior year.
Project execution was strong but the segment gross margin was only 1.2% due to under recovery of overheads.
Under recovery, primarily related to cost associated with the exited iron and steel business.
As of the ended the fiscal year the closure of this business is substantially complete.
Backlog in the remaining business was 26 million at the end of the fourth quarter.
Moving to the full year results revenue for fiscal 2020 was 1.1 billion compared to 1.42 billion in fiscal 2019, a decrease of over 300 million.
On a segment basis consolidated revenue deep decreased in the industrial oil gas and chemical and electrical infrastructure segments by 130, 119, and 105 million respectively.
These decreases were partially offset by an increase in the storage solutions segment of 37 million.
Consolidated consolidated gross profit was 102.2 million in fiscal 2020 compared to 132 million in fiscal 2019.
Gross margin was 9.3% in both fiscal 2019 and fiscal 2020 project execution was strong at fiscal 2020, but lower volumes led to the under recovery of construction overhead costs.
As you get a expenses were 86.3 million in fiscal 2020 compared to 94 million of fiscal 2019.
The decrease in fiscal 2020 was primarily attributable to significantly lower incentive compensation as a result of weaker operating results and cost reduction efforts implemented in the last half the fiscal year.
Adjusted EPS, which excludes the impairments and restructuring costs was a positive 40 cents.
In fiscal 2020 in the prior year the company produced Cps.
Well on a penny.
Moving to our balance sheet and liquidity at June Thirtyth 2020, the company had a cash balance of 100 million.
Debt of 9 million and liquidity of 193 million.
Liquidity continues to be adequate to to find our near to intermediate term needs. Our approach of maintaining a strong balance sheet and good liquidity has been a consistent an important part of our strategy.
Historically have provided annual revenue and EPS guidance.
However, we suspended their practice earlier this year.
Well, we do not intend to provide revenue EPS guidance for fiscal 2021, we do want to provide comments about what to expect for the year.
As a result of co good 19, and an anticipated slower economic recovery.
We expect our revenue volume to started out slow and ramp it has to recovery progresses.
John discussed.
We are changing our segments in the first quarter, we expect our revenue split between these three segments to be relatively balanced, but slightly weighted to the storage and terminal solutions segment.
We also expect relatively consistent gross margin performance for each of our new segments. The expected long term margin ranges for each segment are as follows utility in power infrastructure, 10% to 12%.
Process, an industrial facilities, 9% to 11% storage and terminal solutions tend to 12%.
During the first half of the fiscal year, we expect that under recovery will likely result in margins somewhat below these longer term ranges.
We anticipate improved overhead recovery and margin performance as the revenue volumes increase as the year progresses.
We expect to maintain a lower consolidated SGN, a with a quarterly run rate of around 20 million. A couple of quick reminders related to SGN a first the variability within consolidated SGN a is dependent on the specific level.
Of strategic activities, including M&A as well as incentive compensation, which is based largely on operates.
Second a portion of resulting in a is related to corporate activities.
These costs normally represent between 2.5 and 3% of consolidated revenue.
And we'll not be allocated to the operating segments. We believe this change increases transparency of our cost structure and is consistent with industry practice.
While our tax rate in fiscal 2020 was unusual we still expect an effective tax rate of 27% in fiscal 2021, and our longer term capital expenditure target is 1.5% of revenue.
However, we will continue to limit our capital expenditures as we start fiscal 2021.
This should result in fiscal 2021 capital expenditures of no more than 1% of revenue.
Now I'll turn the call back to John.
Thank you Kevin before we open the call for questions like to be clear on three points first.
Our people focus will be strong and intentional as we continue to be relentless about the health and safety our employees clients and business partners, our diversity equity and inclusion initiatives will set the standard in the industry grading not only lasting impact so the company, but in the community. So much we work next our streamlined business structure.
Reduce costs and strong balance sheet set the foundation as we navigate these challenging markets. They will also be our foundation for growth and expansion across our new operating segments and finally, despite the significant challenges we have encountered and the uncertain market ahead. We are confident matrix will exit this period stronger strategically focus and successful and our bill.
To achieve long term growth objectives with that but up questions.
As a reminder to ask a question do we need to press Star wondering your telephone to withdraw your question press the pound key please demo compiled acuity roster.
Our first question comes from Bank Tillman with D.A. Davidson Your line is open.
Great. Thank you good morning.
Morning.
John Yes, Kevin.
I hear your thoughts around the competitive environment today present bid margin.
Great.
Hey, good to be helpful to hear your credit and current Pexip, what you've been through.
During prior down cycle and also what you all that grew angry cure team. There are also after the right work.
Yes, I think.
Like Mike most of the activities our portfolio the smaller projects generally collect more competition.
And when there is a limited amount of.
Maintenance and project opportunities you know the has a tendency to drive.
Not only the competitive.
Pressure up for reduce margins and those margins are usually not necessarily the gross margins that we might sell a job for a but the ability to carry.
More contingency and other risk items and those projects and so from from that perspective.
Competition right now is pretty stiff.
Our clients are both on the smaller projects maintenance opportunities on large projects are in some cases taken advantage of that situation by you know trying to move the pendulum on there are on commercial terms and conditions, which more risk down on there.
More risk down on there on their contractors and so we have those two things that were there were.
Kind of fighting with its not something it's unusual I think those both those things happen in and sort of down downward wonders downward.
Trends in our industry and things that were used to dealing with.
We've got a very good risk management process specially on the larger contracts, where there is less contractors involved.
Where are you don't want to larger contracts, we've got we're competing against other big contractors. They got the same brisk policies and practices that we have.
And aren't willing to do what we say foolish, thanks and so.
We manage that pretty well I think as an organization, we're not willing to chase.
Projects, especially high risk projects to the bottom.
And.
So I think.
We've done a pretty good job of managing our way to those commercial drivers as a business.
Okay I appreciate that.
The electrical business can be accurate give me I guess garden started QQ to improve the performance of the business seems like that.
Yes, pretty good market out there in that segment I mean, do you expect to see bookings and backlog start building in that business I mean can be levels with the new team you've got in place now.
Yes, So we've got fourth quarter was like lot of our businesses.
The opportunity pipeline fundamentally shutdowns, particularly where our service territories in the northeast.
And our clients.
Most part pretty does either distracted on their own pandemic.
Relief efforts or we had projects were delayed because I didnt want to put too many people onto our restricted side. So, but we as we moved into Q1 or fiscal 21, we started to see a lot more bidding activity and.
We're winning winning more work will be more work at better at good margins and so I would expect to see.
As you move through the year.
Not all the environment getting a little better and our territory, but also the the business development and management changes in that section of our business start to bear some fruit.
Long term you mean long term, we we do.
We do want to grow that business and.
And so we are going to be actively looking for acquisitions in that market. Both in our current service to our territory, but more specifically outside of that territory to gain more scale.
In that business.
Okay, great that the push on the renewable side.
Target.
You are looking to get you could add is a portion of matrixit here a lot going on in that side of that business.
You're thinking about that over the course the next few years wondering how large that can be for you.
So I mean, we've talked renewables it spreads across a bunch of different things so as to renewable generation electrical generation, it's renewable interconnectivity it is renewable energy and.
Hydrogen and Biofuels and so there's a lot there.
And so I think what we're trying to let you guys know today is that Directionally, that's an area, where we're headed and we think that that to some extent a pandemic has accelerated what was eventually going to be a bigger market in North America.
And so we want to get we want to get out in front of that curve, a little bit and so as we work through specific plans.
Yes, when opportunities there, we'll give you guys you know.
Kind of a better feel for what that could look like within the organization, but to the segmentation change we made in.
And what's going to go into those segments is meant to give you some perspective directionally, where we're headed.
Okay, maybe maybe just one last one for me.
You think about once again you come into this cycle with great balance sheet.
Can you talk about your views on stock repurchases director.
Good about some inorganic opportunities out there I know you suspended share.
Repurchases back in March, but yet the stock below book value here, just curious what your thoughts here.
Thank you yes.
Yes, I mean, as we continue to.
We suspended.
Stock repurchases.
Fundamentally because we were trying to manage our.
Manage our cash and we Didnt Didnt know.
Like a lot of people didn't know what this and demick was going to look like how badly it was going to impact the economy and so as as that starts to improve we get more visibility, we're going to weigh down those purchases against acquisition opportunities that are out in the marketplace and so we'll we'll make that decision.
Out there in the future.
But it's certainly this on our radar screen.
We appreciate the fact of where the price of the stock is.
And.
We're going to bounce that against the other things that we that we have gone.
Okay. Thank you guys.
Thank you once again, ladies gentlemen, if you wish to ask a question at this time. Please press Star then one are you touched on telephone.
Our next question comes from John from.
The Dundee your line is open.
Good morning, Kevin and John.
Hi, guys I wanted to touch base on the cost savings actions that you took taken.
A couple of questions actually how much of its variable.
How much of it is dependent on revenue rebound.
And how much you expect to realize in the first quarter 2000.
2021.
So we've talked about this week, we got about 45 million out of the cost structure.
Those actions to achieve that savings.
We're substantially complete by June 30, so yes, we should be we saw a lot of benefit in the fourth quarter.
It helped us achieve near breakeven on that low revenue volumes I think as we move it into fiscal 21.
Those cost savings initiatives are fully in place.
Now there are split between SGN, a construction overhead activity. So it may be harder for you to see the full full amount in the.
The income statement.
So you can see from anticipated revenue.
Right.
There's a pretty significant impact and yesterday, but the bigger impact.
Structuring overhead activities.
I really wouldn't.
We consider most of these reductions as permanent not really variable.
Yeah.
If you looked at.
And you compare to two.
The fourth quarter to fourth quarter of prior year, you're going to see it sounds like seven plus million.
Now.
Did not expect.
$7 million.
Reduction in S.
Quarter.
Yes, there at the variable component divest DNA is is as we've talked about it could be strategic activities such as.
M&A.
Thats, probably the biggest variability is related to incentive compensation, which is largely tied to operating results. So as operating results are improving the amount of incentive compensation improve we're not making money then some outstanding cynic compensation is is extremely small so.
Thats the variable component of our of our us unite I think John.
A couple couple points there are under construction overhead side as work starts to pick up and where we see opportunities.
Add.
Project management for estimating how.
Quality safety, whatever you start to see those costs, which you as Kevin said.
See was that our.
Balance sheet, but.
We'll start to add some people back here and there as were as work starts to pick up.
On the SGT side.
Short of Us doing an acquisition.
And and adding.
Revenue in the has seen a required to manage that revenue.
I don't.
The where were laid out now from an Sta DNA perspective, both from a corporate and our subsidiaries.
Not a lot we need to add and even if we even if our revenues.
Better than what we have planned for this year not a lot additions were going to be required.
[music].
So so as long as I understand is properly.
John.
At the current revenue level, okay in the first quarter, you're not going to receive the full benefit of say $11 million of cost savings.
Yes, our SGN a run rate.
Instructional construction overhead.
After reduced level.
Right now.
Okay. Okay.
One more question I guess regarding the cost savings are some segments more impacted than others.
As far as what Youve taken out of the cost.
On the new segmentation profile so.
On the new segmentation profile I would say that.
You know.
The biggest impact was obviously to industrial.
So thats not existing anymore, so, it's probably spread out pretty evenly between.
When the three segments.
And we we'd look to be.
It was it was company wide review and there were there were cuts on.
Just about every level costs throughout the company. So it's it's pretty sticky wise.
Okay and on the new segmentation can you just talk a little bit about what businesses when were especially in light of the fact is that looks like it slipped about a 100 basis points from your your previous gross margin expectations in storage. So I assume this of shuffling going on.
We don't really see.
Yes, so there's there's theres a big changes in the segments. We started talking about look into new segments. It was.
Start out with we have the small industrial segment that was left.
Needed to do something with that.
As we've looked at segments should be we made some other significant changes.
One thing is that.
John talked about it.
About 40% of our business is probably related to fruit.
If a reader looked at our financial statements and said, okay. What's the crude percentage they could very easily have taken will follow the storage solutions segment and oil gas.
Most of that is.
Is related to crude so the company's 70% related crudes Grady present related crude and that's not the case a lot of growth we've seen in storage over the last few years.
As LNG related seek shavers.
And so we've moved those peak shavers over to be combined with our power delivery in power generation.
I'd say, that's probably the most significant change I would say this be.
A lot of the process type businesses that were included double left over the industrial segment.
Moved over into and combined with the old oil gas and chemicals.
It's probably the biggest because a couple changes on that I guess the third changes.
I mentioned it was.
We previously allocated our corporate costs to the three segments.
We did a review of our fears and and 75% of our peers do not do that.
And so we.
Just to make sure that our segmentation was consistent with our peer group and we are not allocating out the corporate costs to the other three segments there will be presented.
Presented separately you will see on I think it increases transparency ever cost structure.
Consistent with.
Industry practice, and I think you'll see an improvement to the.
Segment presentation.
Thank you and I'm currently showing no further questions at this time, let's turn the call actually we did have a question from the well boots with Stifel. Your line is open.
Hi, good morning kind of Kevin.
I just wanted to one quick question, which is it.
Wondering if you could just go a little bit deeper into how you're thinking about the refinery services market on obviously, it's been a really tough year. We had some players in the market that are a little bit more optimistic on this on the spring turnaround.
Coming up there's less optimistic on could you just delve into how you're thinking about the outlook on as we move into next calendar year, and even a little bit longer term. Thanks.
Sure. So Q4 was pretty much a blood bath thing for us to for a lot of people.
And work was stopped moved out canceled our maintenance our fixed base maintenance operations were.
I'm cases reduced by 25% of.
Manpower and so we are as we move into the summer months.
We're starting to see our maintenance operations come back.
We're seeing our.
Planning and.
And bidding opportunities in discussions with.
Refinery clients on turnarounds is coming back and so.
Our expectation is.
This this coming fall sales cycle will be stronger than what we just went through in the fourth quarter, which wouldn't take much but it was going to be stronger and that the opportunities. There for next spring's turnaround cycle to be very very heavy.
A lot of work lot of opportunity a lot of work has been have been put off.
By our clients.
On to get more in line for them and there will be able to get prepared for next spring. So we we really think that that the back half of the year in our refinery related businesses will be very strong.
I think that.
Thank you Im showing no further questions at this time I turn the call back over to John Hewitt for closing remarks.
I want to thank everybody for sure in time with us today.
Courage everybody too.
To be safe and.
Be careful to take care yourselves in this cobot environment that we're all working in and probably more importantly, lets all be nice to one another so.
Good day and thank you for thank you for listening it.
Ladies and gentlemen. This concludes today's conference call. Thank you for participation you may now disconnect.
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Okay.
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