Q2 2021 Matrix Service Co Earnings Call
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Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
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Ladies and gentlemen, thank you for standing by and welcome to the Matrix Service Company Conference call to discuss results for the second quarter of fiscal 2021.
At this time all participant lines are in listen only mode. So if you require operator assistance. Please press Star then zero.
After the presentation, there will be a question and answer session to ask a question. During the session you will need to press Star then one.
Please be advised for today's conference maybe recorded.
Now like to hand, the conference over to your host today, Ms. Kellie Smythe Senior director of Investor Relations. Please go ahead.
Good morning, and welcome to Matrix service company's second quarter fiscal 'twenty 'twenty, one earnings call for it.
On today's call will include John Hewitt, President and Chief Executive Officer.
<unk>, Vice President and Chief Financial Officer.
The presentation materials, we will be referring to during the webcast today can be found under events and presentations on the <unk>.
Industrial relations section of Matrix service company Dot Com before we 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 the purposes of private Securities litigation.
Reform Act 1995 actual results may differ materially from those indicated by these forward looking statements as a result from various factors, including those discussed in our annual report on form 10-K on our fiscal year ended June 30th 2020, and and in subsequent filings made by the company with.
For the SEC to the extent the company utilizes non-GAAP measures reconciliations will be provided on various press releases your attic.
And on the company's website.
Now I'll turn the call over to John Hewitt, President and CEO of Matrix Service company.
Thank you Kelly good morning, everyone and thank you for joining us I'd like to open with a thank you for our employees for continued strong performance in safety do the first two quarters of fiscal 2021, even with the increased pressure on protecting our employees from the COVID-19 pandemic, our total recordable incident rate.
Through these first six months is 0.1 on this outstanding performance is truly a testament to the strong leadership and focus on her teams.
Now turning to our business discussion as we communicated on our last earnings call. We expected second quarter results to further to be further affected by the continued impact of Covid.
19 has had on health and safety protocols energy demand and global economies. These impacts resulted in reduced revenues.
And the timing of awards from what we consider to be a strong opportunity pipeline.
Our direct operational results have been strong across the business with Bottomline results weighed down by lower volumes under absorption of construction overheads.
<unk> restructuring costs and a challenging storage project, which is now materially complete.
I do want to make the point that while we have made significant cuts in SG&A construction overhead a level of those cuts have been made to support the conversion of the extensive opportunity pipeline into backlog and then revenue we expect both awards and revenue to improve as we move through the back.
Our fiscal 2021, therefore, we will also see improvement in overhead absorption as revenues return.
This imbalance between construction overhead and current revenue create some short term pain, but it's critical to generate much improved earnings in the future and in the long term the earnings potential of that business has been greatly improved.
Related to our award cycle, our consolidated book to Bill for the quarter and year to date remains below one however through the end of January award activity, beginning to improve process and industrial facilities is currently above one for the year and when combined with utility and power infrastructure.
The backlog level has remained fairly stable over the past four quarters as we continue to expand our service offering in these two segments.
I would also note that even though the book to Bill in utility and power infrastructure for the quarter was 1.3. The overall book to Bill for the segment is heavily dependent on larger awards and LNG peak shaving the size of these projects combined with a burn rate of existing LNG peak shaving backlog as it significantly.
Impact on this segment ratio.
We have several solid LNG peak shaving opportunities, which we expect to positively impact the segment awards by the end of the fiscal year.
As it relates to the storage and terminal solutions backlog. This segment, primarily driven by larger awards and changes in the award cycle can create the most variability.
Based on the quality of the diversified opportunities that we're working on our expectation is that this segment will reflect increased strength as we move through the year.
Kevin will review the financial results in detail in a few minutes, but before he does I'd like to highlight several key objectives that we have accomplished over the past few months.
That was well positioned as our end markets recover.
Importantly, as of today, we have materially completed our overall cost reduction and organizational restructuring actions and while we believe we have made all the appropriate adjustments required to fifth for future opportunity potential we will always look for areas to improve our efficiency and competitiveness.
As you look to the future and the energy and infrastructure markets.
Celebrated drive to reduce carbon emissions globally should act as a strong tailwind over the coming years.
We believe that we are firmly positioned to support this initiative across our segments and power delivery gas fired power generation LNG peak shaving natural gas processing and small to mid scale LNG facilities as well as the application a cryogenic tank terminal and general industrial.
Instruction expertise to the expanding hydrogen market.
To that end in January we executed a memorandum of understanding which are on industries on the development of standardized hydrogen solutions, which I will discuss shortly.
In the first quarter of this fiscal year, we implemented a new reporting segmentation to provide greater transparency into existing markets as well as strategic growth areas. This change provides a better understanding of our long term vision and enables us in the second quarter to change our global industrial classifications.
Standard or gigs code from energy equipment and services to industrial construction and engineering. This classification now provides a more accurate representation of our work.
Finally, we have and will continue to keep a strong balance sheet by controlling costs minimizing capex spending and.
Cash flow and maintaining minimal or no debt.
Since the beginning of the pandemic, we are focused on finding the right balance between working capital needs Capex spend project letter of credit requirements Bank covenants capital allocation alternatives and credit facility constraints driven by reduced earnings.
As noted on our opportunity pipelines full must be in position to support working capital demand until earnings improve which in turn will reduce credit facility capacity constraints, even more importantly will be will be letter of credit availability to support the award of larger capital projects in our pipeline.
We're well positioned financially to support the award at revenue improvement in vision.
During times like this it would be easy to lose focus on our various ESG initiatives across the enterprise, while we recognize the critical importance. This focus has on our success in attracting and retaining best in class people supporting the projects business objectives of our clients and investors.
On a fine and acting on strategic opportunities and ensuring organizational resilience and long term sustainable growth.
This includes our work to advance diversity equity and inclusion across our company industry communities and in every sphere, where we can have influence on while there is still much to be done we have implemented enterprise wide training focused on inclusive practices and unconscious bias performed third party.
Equity analysis.
Valuate, it our recruiting and employment practices to look for ways to attract and engage an increasingly diverse workforce.
I assured our policies and practices meet the standard for fairness and equity engaged in various community and industry initiatives and events, including a nationwide movement CEO action for inclusion and diversity and established metrics against which we can benchmark on our progress.
We will publish our first sustainability report for this coming fall following our fiscal 2021 year end.
Yes.
Moving onto our operating segments from services as the world transitions toward new cleaner forms of energy and more electrification. We are also transitioning our services and expertise to create solutions for the evolving infrastructure needs of our customers both near and long term. This is demonstrated by our.
<unk> should position in small to midsized LNG terminals capabilities in utility and power infrastructure and renewable energy opportunities such as hydrogen.
Across our segments, our multibillion dollar opportunity pipeline.
Wind is projects, we will bid are bidding have already bid or on negotiating contract terms remained strong with anticipated awards across our segments accelerating as we move through the last half of the fiscal year.
In power generation and delivery services, which is reported in our utility and power infrastructure segment. We continue to see significant revenue opportunities in LNG peak shaving. Additionally, our expectations are that as the new U S administration pursues his proposed infrastructure plan and regulatory changes will be.
Opportunities in transmission distribution, and Substations general electrical work to address the country's aging infrastructure.
Renewable projects, such as wind and solar will require electrical tie ins to transformers and sub stations and the overall grid, while the drive towards energy efficiency and lower carbon generation assets are likely to result in increased projects for load following such as simple cycle units reciprocating engine project battery backup blue hydrogen co.
<unk> capture and combined heat and power.
And our process and industrial facilities segment headwinds persist in the refining market as our clients continue to stretch the time between turnaround events as a result of the current demand environment. However, we do expect refining activities in turnarounds and maintenance to strengthen in the last two quarters of this fiscal year. In addition.
Projects associated with sulfur reduction Biofuels and refinery conversions will accelerate in future periods.
Our expansion into chemicals and petrochemicals is also gathering momentum as more opportunities are becoming an increasing component of our pipeline.
These opportunities include storage related solutions consumer waste to chemicals plastic recycling to support green chemical initiatives rail material handling logistics upgrades balance of plant design installations, as well as maintenance and turnaround work.
Our dominant position in the engineering fabrication and construction on a thermal vacuum chambers for the aerospace industry is a tracking solid opportunities as this market continues to demand new and upgraded facilities to service the growing private and government satellite markets.
Increasing demand for basic and rare earth metals, and minerals, including copper lithium and nickel for example is creating more mining project opportunities for the business as the push for electric vehicles renewable power and infrastructure spending consume more of these elements. Additionally, there has been an underinvestment in the exploration and development.
It will result in a strong up cycle and the broader metals and mining sector.
This dramatic increase in demand for certain buying commodities and resulting rise in commodity prices over the last year, a significant increase matrix bidding activity on various mining and mineral projects there.
We're seeing the strongest opportunity pipeline in this market that we've seen in several years, including a January award by American Pacific Bora ads for the first phase of construction of its for Caddie Borate mine facility in Southern California, We have begun integration with <unk> for cat, even more a mine management team to <unk>.
Share of completion of the initial borate operation in Q3 of calendar year 2021, <unk> current plan is to retain matrix for the balance of the three production phases of the for Caddy Borate mine.
One is used on a variety of applications, including agriculture, and other industries that manufacture a wide range of products, including detergents flame retardants personal care products gypsum permanent magnets electric vehicles wind turbines glass and more.
Investment in the midstream gas basis, beginning to return as demonstrated by our recent award of our subsidiary matrix Tdm for the engineering procurement and construction of a natural gas pipeline compressor station upgrades. This project will use highly efficient single turbine compressor to replace the for existing compressors supporting the clients.
To reduce greenhouse gas emissions. This project also represents our strategic focus on extending our services to the midstream natural gas value chain beyond cryogenic processing facilities, which will include among other projects injection of hydrogen for the natural gas pipeline system.
Customers position, we hope to issue a formal press release in the near future.
And storage and terminal solutions, while the opportunities in crude oil are currently limited.
Assuming a strong funnel of opportunities in North America Central America, and the Caribbean for storage infrastructure projects related to natural gas LNG ammonia renewable energy and Ngls that support clean energy initiatives and demand for chemical feedstocks.
Across our reporting segments on strategic transition and diversification of services aligned with the changing infrastructure needs of our customers as the world moves towards reducing carbon emissions.
Small to midsized LNG storage tanks and terminals for matrix has a strong brand awareness as an industry leader activity remains robust supporting both our utility and power infrastructure and storage and terminal solutions segments.
We are currently bidding multiple small to midsized LNG peak shaving export and other bunkering facilities across North America, and the Caribbean with an expectation that a world awards will start to enter backlog in fiscal 2021.
As a reminder, LNG peak shaving units reported in our utility and power infrastructure segment are used by our utility customers for storing surplus natural gas to meet consumer demand during different seasons and times of peak consumption bunkering facilities allow for storage and transfer of LNG to a ship for use as full fuel.
Providing a cleaner method when comparator moving gas and heavy fuel oil.
On the export front, our work is focused on small to mid scale export and receiving terminals from the U S. The neighboring islands in Latin American countries.
During the month of January we announced the memorandum of understanding with chart industries, a leading diversified global manufacturer of highly engineered equipment for the industrial gas and clean energy industries for development of standardized turnkey hydrogen solutions.
<unk> has significantly potential to help reduce greenhouse gas emissions across the transportation power generation industrial and waste sectors as well as commercial and residential buildings.
In transportation higher new offers potential use in fuel sales for high efficient zero emission electric vehicles and other hydrogen powered transportation applications, such as rail trucking, maybe equipment hydrogen based synthetic fuels in aviation as well as shipping and marine applications and power generation hydrogen can.
Support de carbonization of power generation networks, and provide a key storage solutions to support intra day on seasonal storage needs, while adding flexibility through natural gas and integration.
Hydrogen can also be used to decarbonize heating and industrial facilities, both in buildings and industrial applications.
Applications include oil refining metals production chemical.
Chemical processes, such as production of ammonia and methanol as well as other processes that require high temperatures.
Our focus on hydrogen value chain builds on our 50 plus years of expertise and cryogenic storage tanks terminals and overall construction capabilities. This relationship with chart and this foundation and cooperative work around LNG for peak shaving Bunkering and export with chart, we will expand our services in this growth area as well.
Work together to develop turnkey standardized hydrogen solutions that include hydrogen liquefaction plants Marine Bunkering fuelling stations plant expansion storage expansion and other <unk> related facilities in response to industrial demand.
Collaborative approach will provide customers with more cost competitive and scalable ways to increase hydrogen as a key part of the clean energy transition.
Since the Mou was announced we have received multiple inquiries from prospective customers, including landfill gas conversion transportation fueling power generation production and storage natural gas pipeline integration to name a few.
Excited about our position in an industry that is expected to see dramatic annual investment growth from both private and public entities between now and beyond the end of the decade, we expect additions from this initiative to impact our backlog starting over the next six to 12 months.
Our opportunity to support carbon reduction initiatives across North America is not limited to natural gas on hydrogen. We are also working with clients on cabinet carbon capture projects liquid air compression and storage using solar power multiple solar storage tanks biofuel conversions biomass waste to <unk>.
<unk> applications as well as solar and wind interconnect installations with end to end expertise across the energy and industrial landscape. We have long enjoyed the reputation for working with our customers to develop infrastructure solutions that help them achieve their business objectives.
<unk> affords us flexibility not available with larger EPC contractors, while on expertise in engineering procurement fabrication and construction along with our financial strength and stability allows us to take on larger more complex projects.
This positions us to create value for our shareholders and for all of our stakeholders as we serve the evolving infrastructure needs of our customers in both the near and the long term I will now turn the call over to Kevin.
Thanks, John.
During the second quarter, we implemented additional planned actions related to reduce reducing our cost structure as John mentioned. These actions included targeted head count reductions full and partial furloughs salary reductions and the reduction in size or closure of our office facilities.
As a result, the company incurred approximately $5 million of restructuring costs in the second quarter.
The table presented provides a reconciliation of earnings for.
For the second quarter and first six months of fiscal 2021.
The earnings per share for the quarter was a loss of <unk> 17.
Which included the impact of the restructuring costs that reduced earnings by <unk> <unk> per share.
<unk> the restructuring cost for quarterly adjusted earnings per share was a loss of <unk> for.
For the six months of fiscal <unk>.
'twenty one the earnings per share on the loss of 29.
Which includes the impact of the restructuring costs that reduced earnings by <unk> 13 per share excluding the restructuring items adjusted earnings per share for the six months was a loss of <unk> 16.
Over the last year the company has reduced its cost structure in excess of $60 million for approximately 25%.
With a third of those reductions related to SG&A and the rest related to construction construction overhead which is included in cost of revenue on the income statement.
John noted even with these dramatic reductions in construction overhead.
Revenue levels will not allow for complete recovery, which reduces the gross margin.
Based on our opportunity pipeline and the strength, we see returning to the business in the near term.
Current adjusted overhead levels are appropriate.
While the company will continue to manage our cost structure, we're now focused on rebuilding our backlog and revenue volume.
Our backlog at December 31, 2020 is $623 million, a decrease of $56 million in the quarter. Our book to Bill was <unk>, 7% in the quarter on project awards of $112 million, while the volume of project awards in the first half of fiscal 2021 has been lower than normal we see positive.
Signs in our markets. It remains our expectation that bookings and revenue will improve as we move through the second half of the fiscal year and we expect to achieve an annual consolidated book to bill of greater than one.
By fiscal year end.
Now I'll move to operating results for the quarter in the second quarter, we produced revenue of $167 million.
Compared to $319 million last year.
Approximately half of the decrease is related to the current market environment and the other half is related to our exit from the iron and steel business and the completion of a major capital project in the process and industrial facilities segment.
Our gross margin in the quarter was nine 1% as compared to nine 4% in the second quarter of fiscal 2020 overall project execution was strong with consolidated direct gross margins within the range of our normal expectations of 10% to 12%.
Project execution was the strongest in the utility and power infrastructure and process and industrial facilities segments.
However, direct margins were impacted by additional cost recognized on our crude terminal project in our storage and terminal solutions segment.
In addition, low revenue volume led to under recovery of overheads, which brought the gross margin performance down for the quarter.
Our SG&A was $16 7 million in the quarter as compared to $23 2 million in the same quarter last year.
28% decrease in SG&A SG&A is primarily the result of the cost reduction actions previously discussed as.
As well as a onetime item.
We expect our base SG&A levels to approximate $18 million per quarter for the remainder of fiscal 2021.
The primary variable cost within SG&A is incentive compensation, which would increase as the company returns to profitability.
Consolidated operating income was a loss of $6 5 million or three 9% of revenue adjusted.
Operating income, which excludes restructuring costs was a loss of one 4 million from 8% of revenue.
Overall strong project execution, causing contract Closeouts and good cost control was offset by lower revenue volume, which resulted in lost margin opportunity and under recovery of overhead costs.
Our effective tax rate for the quarter was 29%.
Per the 10, 5% for the same period, a year ago, we expect to operate with an effective tax rate of approximately 27%.
Minder of fiscal 2021.
For the quarter, we produced a loss from <unk> 17 per fully diluted share excluding restructuring costs. We produced an adjusted loss per share on <unk>. Adjusted EBITDA was also impacted by lower revenue volumes for the quarter. Adjusted EBITDA was $4 2 million compared to $12 6 million in the prior year.
Now, let's talk about the specific results for each of our segments revenue for the utility and power infrastructure segment increased from $49 million in the three months ended December 31 2020.
For 2000 $19 million to $52 million in the recently completed quarter. The increase is due to higher volumes of LNG peak shaving activity, partially offset by lower levels of power work for.
Segment gross margin was 10, 8% in the quarter compared to a negative two 5%.
In the fiscal 2022nd quarter.
Current quarter gross margin was positively impacted by improved execution on power delivery work and continued strong execution on LNG peak shaving projects.
SG&A for the segment was $2 6 million compared to $2 8 million in the prior year.
Segment operating income was $2 2 million for 2%.
Adjusted operating segment operating income, which excludes restructuring costs was 3 million or five 8% of revenue.
While additional revenue volume as needed overall segment performance has significantly improved over the last year due to project execution and a decreased cost structure.
Moving to the process and industrial facilities segment revenue was 51 million from the second quarter compared to $143 million in the same period last year. The decrease is primarily due to the strategic exit from the domestic iron and steel business completion of a major capital project as well as lower volumes of midstream.
Gas projects and refinery maintenance and turnaround work.
The segment gross margin was 15, 3% for the quarter compared to nine 7% in the same period last year.
The 15, 3% segment gross margin was primarily due to strong project execution and favorable contract Closeouts.
All segments had under recovery of construction overhead costs as a result of lower revenue volumes day under recovery was offset by a onetime workers' compensation item.
SG&A for the segment was $3 4 million compared to $7 4 million in the prior year. The decrease in SG&A is the direct result of cost reduction efforts.
Segment operating income was $1 1 million or two 2% of revenue while adjusted segment operating income was $4 5 million or eight 7% of revenue.
Overall the segment performance was impacted by lower revenue benefited from strong project execution and a reduced cost structure.
Next we will cover the storage and terminal solutions segment revenue was $64 million in the three months ended December 31.
2020, compared to $127 million from the same period last year.
Revenue volume continues to be impacted by the current environment.
This resulted in a significant decline in project awards.
Gross margin for the quarter was only two 9% as compared to 14, 2% in the prior year quarter.
Despite the majority of the segment executing at a high level two items negatively impacted quarterly gross margin first the low revenue volume resulted in under recovery of construction overhead cost.
The company incurred an increase on the cost to complete the construction of a large crude terminal. The company has achieved mechanical completion is D mobilizing from the site.
And is working through final closeout and change orders with the client.
The impact of this project charge reduced the segment gross margin by nine 7%.
SG&A was $3 9 million compared to $6 8 million in the prior year due to cost reduction efforts.
Non operating income was a loss of $2 7 million oil.
A negative for 2% of revenue adjusted operating income, which excludes restructuring costs was a loss of 2.1.
$1 million or negative three 2% of revenue overall.
Overall segment performance was impacted by an almost 50% reduction in revenue as well as the project charge.
Now I'll briefly discuss the six month results consolidated revenue was $350 million for the.
For the six months ended December 31 2020.
Compared to $657 million in the prior fiscal year to 47% decline was a combination of the exit from the iron and steel business completion of a major capital construction project and the impact of the Covid environment on a segment basis revenue decreased $201 million in process and industrial.
<unk> facilities and $122 million in storage and terminal solutions.
These decreases were partially offset by $16 million increase in utility and power infrastructure.
Consolidated gross profit decreased from $62 5 million in fiscal 2020, $29 7 million in fiscal 2021.
Gross margin decreased from eight 5% in fiscal 2020 to eight 3% in fiscal 2021.
Fiscal 2021 gross margin was positively impacted by overall strong project execution that was partially offset by under recovery of construction overhead cost because of the decrease in revenue volume.
Consolidated SG&A expenses were $34 9 million in the first six months of fiscal 2021 compared to $46 9 million in the same period a year earlier.
For 26% reduction as a result of cost reduction efforts the company company implemented throughout calendar 2020.
Consolidated operating income was a loss of $9 9 million or two 8% of revenue.
Adjusted operating income, which excludes restructuring costs.
For the loss of $5 2 million for one five percentage of revenue.
Overall strong project execution and good cost control was offset by lower revenue volume, which resulted in lost margin opportunity and under recovery of overhead costs.
For the six months of fiscal 'twenty, one we produced a loss of 29 cents per fully diluted share excluding restructuring costs. We produced an adjusted loss per share of <unk> 16.
Adjusted EBITDA for the six months of fiscal 2021 was $6 2 million one 8% of revenue.
Moving onto our balance sheet liquidity and financial position.
Position remains strong with current liquidity of $127 million.
During the quarter, we generated $28 million of cash from operations and utilized $9 4 million to pay off all outstanding debt.
We ended the quarter with a cash balance of $93 million and availability under our credit facility is $33 million.
Our capital expenditures in the quarter were only 300000 as we continue to limit capital expenditures until revenue volumes return.
We have spent 3 million on capital expenditures in the first half for the fiscal year, which represents less of one percentage of revenue.
Our approach of maintaining a strong balance sheet and good liquidity remains this approach along with our cost reduction efforts have allowed us to remain financially strong and a difficult environment.
Before we open the call up for questions I wanted to discuss expectations for the last half of fiscal 2021.
As we've previously discussed the pandemic has significantly impacted our business and revenue volume based upon the robust project pipeline, we expect to grow backlog as we move through the balance of the year.
On the exact timing of project awards can be difficult to forecast.
See some improvement in revenue in the third quarter and a more significant improvement in the fourth quarter.
Now, let's open for questions.
Ladies and gentlemen, if you'd like to ask a question at this time. Please press. The Star then the number one day on your Touchtone telephone again that is star then one if you'd like to ask a question at this time.
Yes.
Our first question comes from the line of John for <unk> with Sidoti <unk> Company.
Good morning, John Kevin Kelly.
I actually like the stope for storage business.
I was kind of surprised by the revenue level and also surprised by the <unk>.
Charge that was taken in the quarter for that one project.
Talk a little bit about I guess first on the revenue side, the cadence going forward on that business because as Kevin just alluded that you expect our revenues to improve going forward.
So is it going to prove in storage and secondly.
I Wonder I'm curious about what was unique about this project that resulted in the roughly.
2% into the gross margin.
So I'll handle the.
The revenue cadence so.
This segment has been impacted by the by this market environment and project awards being delayed.
As a result, our revenues have decreased I would expect.
That the third quarter, we might see a little bit of improvement, but it's going to be dependent on the timing of project Awards.
Baseball, we currently see in the pipeline and the expected award dates we would expect a more much more significant improvement in the fourth quarter.
And as it relates to that specific project John I can't give you a lot of details about that because we're not.
Pattern on reach final completion, yet and working through some details with our client but.
It's not it's not unusual even in storage, where we can have a project that's got some challenges.
For a lot of reasons, sometimes they don't always come to light in an environment, where revenues are fairly high.
Hi on our storage segment.
Margins there are usually always strong as they were here with work other than this project so sometimes those.
Kinds of projects.
On to identify themselves in.
In the mix of work, which is within our storage segment I can't tell you to keep in mind that this project.
Was.
Heavily in the middle of the Covid environment.
<unk> had a lot of weather impacts as we move through the year.
So those are things that we need to work through.
As for branded project to a close.
So John is it fair to assume that storage margins will return to normal next quarter.
Yes, I mean, I think if you.
We had some.
It was just fairly typical for our for our company as we work through backlog.
We will find a lot of times. The performance is there we will find opportunities to <unk>.
<unk>.
To upsize, our margins because of that performance.
And so as we're in this swing from a declining backlog to an increasing backlog.
We'll be more new project starts.
As we move through the course of the year and the opportunity for a contract strong contract Closeouts, maybe won't be as much. There is as would have been in this quarter. So.
On the back and forth. There I think we will we are continuing to think that our performance in the storage segment will operate at the gross margins that we have that we have indicated.
And.
So for now it's just going to be for us for about build backlog.
So when you think about that.
Quarter, specifically John.
On.
Net.
Level of revenue.
Won't support full recovery of overheads, so that still have some impact on on gross margins as we get into the fourth quarter. If everything falls like we expect then then we'd be back in the range.
Well I'm just I mean local revenue is flattish that would still suggest a gross margin roughly 12%.
Segment net.
On a fair to assume winner.
Well, so I would say the direct margin that would be that'd be fine to assume but at what do we do 64 million on revenue this quarter could do something similar or a little better youre still going to have under recovery that will bring that direct margin down below our normal range.
And John regarding the Chuck technologies.
Memorandum, you mentioned that there's already been some.
Discussions about potential orders so that six to 12 month time range could you put a size of those orders.
<unk> got the big jobs.
Context.
We'd be looking at as far as price Effectivity.
I think it would be similar to our mix of work in our current business. So we're so for instance, we're hydro mark is not completely new to us. So we currently are constructing a.
Fear for a hydrogen for hydrogen application in the Western U S.
And so.
So that project I think is in the teens sort of size range.
So I would expect projects.
In this.
In this hydrogen market the projects.
10.
100, $150 million kind of range individual projects dependent on the size and scope of the <unk>.
On the App, what the application is.
That's a pretty wide range for the bigger projects compares to the smaller ones.
It's hard for me to Heartbeat Handicap that I mean, we're like I said, we're we've opened up the business development book between ourselves and chart and we're looking at the projects that we're going to chase jointly.
And.
I don't have a clear I don't have a clear of list in my mind here, what the value of all those projects are.
Okay and just on the turnaround season, how is it shaping up for the spring season versus the fall.
Last fall.
That's correct yes.
So our anticipation or we've got three fixed based maintenance operations.
Currently and those have fundamentally returned to.
Let's say normal normal kind.
Kind of service services.
And so we're also expecting a stronger turnaround cycle. This spring.
And certainly last fall and for sure or loss last spring and so it will be at a quote unquote normal level for us I don't think so, but it's going to be certainly going to be better than we've seen for <unk>.
For 12 months.
Got it thanks, guys I'll get back into queue.
Thank you.
As a reminder, ladies and gentlemen that is star then one to ask a question.
Our next question comes from Zane Karimi with D. A davidson.
Hey, gentlemen, how are you today.
Very good thank you.
So my first one here is some of the small and midsized LNG peak shaving facility, there and the products pipeline and do you have any sense on timeline for those can we realistically see one or more of them moving forward.
Two H.
Based on what we're looking at what we have on our pipeline and things that we have been working on over the past three or four months.
It's entirely possible that one or two of those would move forward and to a contract within the this fiscal year.
Okay.
And then a little bit more detail on the hydrogen opportunity there, but have you guys looked at around like a 12 to 24 months plan or have you comment on targets around that for the hydrogen opportunity.
So couple of things or the market. We think the market is an expanding multibillion dollar annual market that's going to continue to grow as you move out at the time.
We are working with our partner on technology partner here.
On developing that plan and strategy for the.
From where we see the opportunities where we see our strengths in net opportunity pipeline.
So we have not set a.
A revenue goal against that opportunity pipeline I can just tell you that the opportunities that we're seeing today.
Would lead us to believe that the.
Within three years this could be a.
It could be a pretty substantial market for our business.
Flow through on an annual basis.
Okay that makes sense, there and then on for the utility segment real quick.
With regards to the power delivery question on the utility segment.
The capital plan to customers.
Then also your efforts to extend your service territory.
Organically or through M&A.
Yes, so right now we've been we've been focused on.
Improving the performance, which we've done or our direct margin performance in that business over the past couple of quarters has been really has been really strong.
Bidding environment is exceptionally robust.
From an organic basis, we have moved into on I'll call, The Ohio Valley area with some new clients.
We've expanded some of some of our clients, we've been able to get to.
MSA agreements with some clients we had worked with in the past. So we're continuing to do things we need to do to expand that we've been very active.
With storm response.
Throughout the northeast.
And so were for.
On an organic basis from a performance basis.
From our ability to expand our client base.
We are not satisfied of where we are today, but we're pretty satisfied with the progress that we've made.
And that continues to be an area for the company, where we want to grow that service offering and make it a larger part of the companies.
Overall portfolio and ultimately to make that a coast to coast delivery.
Okay.
Last one for me then would be more on cash flows I was just hoping to hear your thoughts and expectations around sustaining positive cash flow in the next couple of quarters, even as revenue and earnings.
Yes might remain relatively speaking under pressure.
Yes.
I think a couple of things there first of all the fact that we.
Entered this COVID-19 period with a very strong balance sheet.
A significant asset to us.
And I think we've done a good job of maintaining a good strong financial position over the last year.
And so we're kind of set up for growth in the 10 to support the growth as it as it returns over the next couple of quarters. The fact that we've reduced.
So much cost out of our out of our company.
We're able to even on a quarter that we have.
Lightly negative earnings still be positive.
Troll on cash flow and I would expect that to continue.
As we worked through the third quarter and then when we return to.
Stronger performance.
We might have short term.
Impacts to working capital needs.
When revenue comes it will depend on the mix of revenue how much is reimbursable type work that is billed in arrears versus.
Lump sum work that could work that could have some down payments.
So I think we're positioned to cover that.
In addition to what we're also on positioned to cover the letters of letter of credit requirements.
Some capital projects could have.
Hi, John I appreciate the color thanks, Dan.
We have a follow up question from the line of John <unk> with Sidoti. Your line is now open.
Yeah, Joe just on the mining market with commodity prices, improving can you give us a sense of scale for your business, how big of a business that is for you and with the opportunity pipeline looks like in that business from a year ahead.
Yes, so just a little history, there we got into that business.
Nine years ago with basically the we did that organically by hiring.
Group of Manny.
Managers.
Open up on office and the Arizona region started service in fundamentally copper mines.
And for.
For about $3 for years, we had some you had some really good success there.
Really one of the main.
Revenue and margin drivers and our industrial segment and then.
The bottom for a lot of the global commodities market and really for the last five years.
That business had been very flat now the resources associated with that are also resources that we move around other projects. So it isn't like there is a unique specialty there certainly the client relationship pieces.
<unk> part, but.
The actual services, we are providing a very similar to the other construction services.
So a little background there so over the last five six months I think you've seen global commodity prices start to tick up copper for instance, general rule of thumb is copper is trading at anything less than $2.70 per pound, they're not spending the clients are not spending any.
The money on.
On.
Production expansion.
And significant maintenance in their operations.
Copper is hovering at $3 50 to 360.
And so you take that and you think about the all the other basic minerals that are going to be required as the.
The North America, and then frankly, the world moves to a.
Liquefied cars more renewables more solar panels.
And just the basic infrastructure spending thats pent up in the market because of the pandemic, we think youre going to see a huge demand on oil.
On on metals and minerals.
And that there is there is going to be a lot of opportunities domestically for.
For mining companies that are going to want to that are.
There's a need to up to a need to increase their production.
In their facilities and so pick up pick a model, whether it's copper lithium or break that way, which is not a metal but its mineral.
<unk>.
So our bidding environment right now is very very full.
And so we think that.
Oh out over the future here over the next two to three years, we're going to see some some really good increases on our backlog and revenues across the business.
That.
In that sector.
What could it be.
In the next couple of years, we could be seeing the kind of $500 million kind of revenue levels.
Our mining segment that we saw six years ago.
Is that limited to North America, because lithium I focus largely on South American mining operations.
Currently I mean, our focus currently is on is on North America.
We have aspirations and are working on projects in the Caribbean This more related to.
LNG.
Related infrastructure and maybe some hydrogen infrastructure.
<unk>.
So we'll watch how that expansion goes in.
If opportunities for that presented solve out way out into the future into maybe into Mexico.
From America, we might consider those but right now thats not on the page.
And you said sensitivity copper spending below the $3 threshold.
Yes, Joe.
As if the price of copper is below $2 $72 60.
Per pound than usual for a contractor that we're kind of dries up.
Got it got it thank you for that color I appreciate you.
Youre welcome.
I'm showing no further questions in queue at this time I would like to turn the call back to John Hewitt for closing remarks.
Uh huh.
Yes, I want to thank everybody for being with us today.
I am hoping to take away from the call today was the appreciation that we think our future is very bright and our vision is very clear on on where we're going we're very excited about our role in the strong infrastructure spending that we see is on the horizon.
I really want to thank our employees for their hard work on these extremely challenging times.
We transitioned to a much more improving business and pandemic environment.
So thank you to our investors to for supporting our business and we look forward to talking with all of you on the near future on I encourage everybody to please stay healthy and safe.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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