Q4 2019 Earnings Call
Fire operator assistance during the conference. Please press Star then zero on your telephone keypad.
I would now like to turn the call over to Kelly Smith Senior director of Investor Relations Ma'am you may begin.
Good morning, and welcome to Matrix Service Company fourth quarter earnings call participants on today's call will include John Hewitt, President and CEO Matrix Service company, and Kevin Cavanah, Vice President and Chief Financial Financial Officer. The presentation materials, we will be using during the webcast. Today can also be found on the Investor Relations section of the matrix Service company website.
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 constitute forward looking statements for purposes of the private Securities Litigation Reform Act of 1995 actual results may differ materially from those indicated by these forward looking statements as a result of various factors.
Including those discussed in our annual report on Form 10-K for our fiscal year ended June Thirtyth 2019, and in subsequent filings made by the company with the FCC.
To the extent that company utilizes non-GAAP measures reconciliations will be provided in various press releases and on the company's website.
I will now turn the call over to John Hewitt, President and CEO Matrix Service company.
Thank you Kelly good morning, everyone and thank you for joining us I'd like to start today's call with a discussion about job site safety and our performance in fiscal 2019.
Well, we had an outstanding start to fiscal 2019, we ended the year with a consolidated total recordable incident rate of 0.59, which is disappointing when compared to our record performance of 0.49 in fiscal 2017, and 2018, well parts of our business achieved excellent performance other parts did not and we judge our enterprise performance on a consolidated view, while the statistical variance between 2019 in previous years may seem insignificant to those outside of our industry and its very significant on how we think about the effectiveness of our safety culture, and our drive to zero related to our drive to zero I'd like to share with you today two key focus areas for our company in fiscal 2020.
[noise] dropped objects that historically played a major role in incidents across the construction industry. In fact, according to the department of Labor. The U.S. construction industry has approximately a 143 dropped object recordable incidents everyday to prevent or mitigate drop object incidents from occurring we're raising awareness across all of our job sites were also proactively educating our people on the importance of having both primary and secondary retention tools in place.
Elevated walking and working surface protection safer scaffold construction and better rig in controls the second area or tas involving the use for hands and fingers and his finger injuries accounted for approximately 50% of all recordables across multiple industries. In this area. We are implementing a hands free program, where increased training and engineered tools are used to keeping employees, having to places where her hands in harm's way.
Organizationally, we are committed to making investments and these program improvements as well as other initiatives to make our workplaces safer I am confident that if we create and sustain a safer work environment combined with the great leadership of our feeble.
Safety first culture, we will ultimately achieve our goal of zero.
Turning now to our performance and outlook. We are very pleased to report that the first fourth quarter marked a strong close out to our year as our previously forecasted outlook for an improved second half of fiscal 2019 came to fruition.
Consolidated fiscal 2019 revenue was up nearly 30% over the prior year and we achieved earnings per share of one dollar one.
In fact, the fourth quarter represented a confluence of events, including high maintenance volumes strong operating performance and positive capital project timing, which resulted in record quarterly revenue and earnings while Kevin will provide the details on our financial performance I want to remind you of some key expectations that we communicated as we entered fiscal 2019, we said we would substantially complete lower margin work taking on during a highly competitive market cycle in previous years, We said, we expected higher volumes in our turnaround work storage solutions segment and in the Iron and steel business. We said, we would produce stronger margins in these segments and we say consolidated revenue and gross margins would improve quarter over quarter. We are pleased to report we have achieved each of these expectations.
In addition, we preserve backlog at 1.1 billion supported by solid project Awards of 1.3 billion and we achieved earnings of one dollar one per share while within our annual well within our annual guidance range.
Finally, we have continued to expand our brand across the markets, we serve creating a strong opportunity pipeline that will allow us to build our backlog as we move through fiscal 2020.
On behalf of our entire senior leadership team I'd like to congratulate and thank our employees for their hard work and performance.
Looking forward at recent Investor conferences, and on our Investor Road shows you that asked about our strategy for growth and more specifically, how we will reach our fiscal 2022 target revenue 2 billion plus the key elements of our strategic plan includes safety people and communication clients in growth and execution excellence.
These four elements are intrinsically linked and together lay the foundation for the specific growth initiatives, we will undertake to expand the business and continue to build long term shareholder value.
On safety in this fiscal year, we focused on engineered solutions to mitigate safety risks. We also implemented a world class Agency management system that will provide a better more real time data to focus our actions to effectively improve our performance. We will continue to make investments in our people training and processes to achieve and maintain a zero incident work environment.
Ultimately our performance is a direct reflection of our greatest resource our people, we have and will continue to invest heavily in our people to deepen and broaden our bench strength inspire a great work environment and to further develop a strong communication channels across the organization in doing so our teams are actively engaged on important initiatives, including developing the current and future workforce, improving hiring that selection processes strengthening our learning culture building and inclusive and diverse workplace, ensuring the harassment free environment and doing everything we can to a workforce health and wellness.
Another key aspect of our people strategy. She is to ensure we have a strong succession process within all levels of the Corporation, let me share with you some exciting changes within our executive team, we just announced at 47 years in the industry. The last 11 of which with matrix Service Company, Joe Multivarejo will retire from his role as Vice President and Chief operating Officer effective June 32020.
In addition to sharing his vast engineering and operational expertise to our leadership teams over the years, Joe has been instrumental in elevating our ability to understand assess and mitigate project and contract risk. Please join me in thanking Joe for the tremendous impact. He has made to not only matrix service company, but also to our industry and the community.
As part of this concession transition we have created an interim rule President operations. This will roll report to Joe from now through the end of the fiscal year and have direct leadership for our three operating subsidiaries major Servicelink matrix, North American construction and matrix Pdm engineering, Alan Updike's will step into this interim role effective September 32019, and will later transition to the COO position on July Onest 2020.
Alan joined our subsidiary company matrix servicing in July of 2012, as Vice President of capital construction subsequent promoted to senior Vice President operations in February of 2018, and you President of Matrix Service Inc.
Prior to joining matrix Allan held various executive roles in the engineering and construction industry.
Brad Reinhart, who will assume the role of President Matrix Service think Brad joined matrix and 988 and has held numerous roles over his long tenure with matrix Red has spent most of his career in our storage solutions business. Brad was promoted to president matrix Pdm Pdm Engineering and December 2016 in that role Brad led the integration of Houston interests was triple engineering capabilities and position the company to take on larger ESPC projects, Glenn Rogers will be promoted to the role of President matrix Pdm Engineering lend join Magic service inked in January of 2018, as Vice President of strategic development.
Glenn has over 40 years of industry experience, including executive leadership roles and other large engineering procurement and construction companies.
Jason Turner has been with the company since 2006, holding various corporate executive roles prior to being named President of matrix North American construction in 2014.
Jason will continue in his role as president of matrix, North American construction, and with Brad and Glenn will report directly to our Updike effective September 32019, I want to again recognize Joe Montana Banos huge contributions to the organization as well as those Alan Brad Glenn and Jason. These executives represent a portion of the depth of the leadership of our organization our efforts related to succession planning employee development recruiting and retention have positioned the company for continued success.
In clients in growth as we take on increasing volumes of work and larger more complex projects. We will continue to make necessary investments in people processes and technology. We will also pursue strategic opportunistic acquisitions, where there was a good cultural and strategic fit.
Our world class MPC storage and terminal capabilities in crude oil LNG and NGL are in high demand for projects that support North America's energy abundance and the United States, leading position in the global energy market. This expertise is also advancing our position as a leading contractor of choice for mid sized LNG facilities were significant opportunities exists for peak shaving bunkering and feedstock for off grid and remote electrical generation.
In oil gas and chemical we continue to build on our strong position in North America as refineries, gaining market share and long term onsite maintenance and repair agreements as well as ongoing heavy and mechanical turnaround activity capital projects and plant services for example.
Today, we announced a five year contract signed with shell to serve as their primary onsite mechanical services contractor at your Puget Sound refinery, where we will provide embedded services, including maintenance small capital projects and turnaround support.
With this award we added routine mechanical maintenance to the services. We have provided the shell at a number of this refineries through the years, including turnarounds tank repair and industrial cleaning services, we're very proud of our long standing relationship with shell and history of quality services, our progress to build brand awareness and expand our service territory and midstream natural gas processing is gaining traction our project outcomes have been very supportive of the expected margin range. In this segment and we look to continue this growth as the industry builds out its infrastructure.
Finally, we are focused on extending our expertise and capital construction turnarounds and plant services to petrochemical industry as it invest billions in new and existing facilities, primarily along the less Gulf coast.
In our industrial segment, we remain the leading contractor of choice for maintenance and repair services inside North America's integrated iron steel facilities and for new capital projects supporting advanced high strength steel and other next generation processes, our brand in mining and minerals and material handling also position us for improving opportunities when the industrial commodity demand and pricing strengthens for copper and other non ferrous metals, including gold and other rare Earth minerals.
Finally, while the power delivery portion of our electric infrastructure segment has been challenged by our current limited geographic footprint significant opportunity exists as a result of aging infrastructure and the need for more reliable efficient secure interconnected distribution to address the demand and power delivery. We will continue to grow our leading brand position organically beyond our current geographic footprint as demonstrated by our current expansion into the Midwest. Additionally, we are actively looking for acquisition targets that fit our strategy culture and financial expectations Lastly, the demand for environmentally compliant power generation fueled by low cost and abundant natural gas is continuing to create unique opportunities for us to support our strategy of smaller well defined package work.
In execution excellence, we are continuously engaged in initiatives that will allow for greater efficiencies and consistent sustainable earnings. These initiatives include among others implementation of an enterprise wide quality management system enhanced engineering tools improve business and project management processes and continued strong cash management.
We're also work at work formalizing, our sustainability strategy to tell our story about initiatives already in place and to expand our efforts. Even further we want to thoughtfully ensure that we embed a strong corporate social responsibility culture into our business strategy and processes and that we communicate about the results of our efforts to all stakeholders.
With continued focus on these foundational elements of our strategic plan safety people and communication clients and growth and execution excellence, our top business growth investment areas include.
Expanding our power delivery reach client base and revenue through organic growth strategic acquisitions, and capital investment and needed specialty equipment.
Expanding our APC project capabilities, primarily in storage solutions, and oil gas and chemical by adding people as needed and engineering estimating and operations to handle expanding workloads and considering bolt on acquisitions that bring added capacity expanded geographic reach and new skill sets.
Investing in people initiatives enterprise wide to ensure we recruit retain and develop best in class people and that we are creating an inclusive diverse and safe workplace.
Expanding internationally through acquisitions, where we can gain and operating foothold. We will also continue to strengthen our business development activities with internationally experienced people and resources to facilitate market penetration as well as follow existing clients into these markets and finally, we will continue to expand or engineering depth and breadth through active recruitment and employee development programs focus succession planning and targeted acquisitions that support not only our existing markets, but also our strategic growth areas, such as chemicals and petrochemicals.
We will also consider investments in other areas to grow and strengthen and improve the business among them acquisitions that helped build scale in our Canadian operations and expand our industrial electrical services, we will continue to assess our entry point into the renewable energy space.
Pursuit of joint bidding opportunities and were acquisitions that will allow us to enter the federal market with our storage solutions and energy infrastructure capabilities.
And expansion of our fabrication capabilities and steel plate structures lighting systems, modularization as well as specialty vessels through equipment investment acquisition or both.
Making these investments over the next three years, we expect to grow organically year over year at a rate of 5% to 8% with remaining revenue to achieve a topline of over 2 billion coming from acquisitions with increasing project volume and higher margin work as well as a continued focus and prudent management of our cost structure, we expect to achieve EBITDA margins of 6.5% and return on invested capital of 12%.
While we are confident in our ability to achieve our objectives and we are operating in an environment with strong Tailwinds. We will also closely monitor potential headwinds, including macroeconomic political and other external factors that as we're all aware create an environment global uncertainty as we've experienced in the past we must always be mindful of market conditions that can impact the timing of project awards and starts as well as client spending patterns. These factors can create variability in our quarter over quarter award cycle and bottom line performance.
While we will watch these conditions closely over the long term I remain confident in our ability to deliver continued growth and sustainable shareholder value. Because we are working in a strong diversified markets, where our services are in high demand. We're focused we have a clear vision and a strategy with experienced leadership best in class people and a solid culture and core values and we know how to execute we put safety first deliver on our promises and Concertedly manage our capital. These elements demand focus and execution creates significant momentum for higher backlog revenue earnings and free cash flow I will now turn the call over to Kevin to discuss fourth quarter and full year results.
Thank you John .
I would like to start by thanking our employees for delivering strong results in fiscal 2019.
As John mentioned, we are pleased with both our fourth quarter and full year operating performance.
The fourth quarter continued to five quarter trend of improving revenue.
Margin and EPS performance revenue of 399 billion and fully diluted earnings per share of 47 cents represent the highest quarterly operating performance in our history.
The fourth quarter is also a strong close to fiscal 2019 full year revenue of over $1.4 billion and fully diluted earnings per share, but dollar and if any market substantial improvement over the operating performance. The last couple of years in fiscal 2019, we saw significantly higher revenue volumes larger projects revenue stream, the percentage improved earnings potential and higher utilization and leverage of our cost structure.
As a result of the strong operating performance. We also ended the year in a strong financial position.
Liquidity increased to some increased 76% in fiscal 2019, and we ended the year with 242 million our highest level in five years.
Now, let's talk about the fourth quarter in more detail.
As I mentioned revenue was a quarterly record high of 399 million.
This was a significant increase over fiscal 2019 fourth quarter revenue of $293 million.
Storage solutions increased $53 million or 55% to $149 million in the quarter on higher volumes throughout the segment, including tank and terminal specialty storage and repair and maintenance industrial revenue almost doubled from $64 million in the fourth quarter of fiscal 2018 to 120 million. This quarter. The growth was the result of increased volumes of iron steel work.
Electrical infrastructure revenue was up slightly from 53 million last year to 54 million this quarter and oil gas and chemical revenue was $76 million compared to $80 million last year as a result of lower levels of capital work.
The company recorded recorded a consolidated gross profit of $43.7 million during the quarter compared to $21.5 million during the fourth quarter and prior year.
Our overall gross margin for the quarter was 11% compared to 7.3% in the prior year to better understand the significant improvement we need to look at segment performance.
The storage solutions and oil gas and chemical segments produced our highest gross margins of year, 13.9% on strong project execution. This gross margin performance represents the earnings earnings potential for these segments, but is above our normal targeted ranges.
Industrial also produces highest gross margins for the year at 8.5%.
Improved margins were created from iron steel work and better recovery of overheads, partially offset by margin deterioration on a thermal vacuum chamber project that is nearing completion.
The gross margin for electrical infrastructure was only 4.3% due to fall.
Proceeds received on the settlement of a disputed power delivery contract were less than anticipated.
Revenue on our initial organic Midwest expansion for gross margins below our long term expectations. We expect these to improve as the business matures in this new market.
And as we've discussed before the power delivery business has not met our expectations recently and we continue to work to improve the operating performance.
I'll talk about future margin expectations for each of the segments. When we do guidance for fiscal 2020.
Consolidated SDN eight during the period increased to 26.3 million.
Compared to 20.6 million one year ago.
The increase was primarily due to higher levels of variable compensation expense as the result of improved operating performance SDMA as a percent of revenue decreased to 6.6% in the quarter as compared to 7% in the fourth quarter last year.
As a result of the improvements in revenue and gross margins. The company was able to produce quarterly operating income of 17.4 million net income of 12.8 million and earnings per share of 47 cents.
Moving to full year results in fiscal 2019, our revenue exceeded 1.4 billion, which was a 30% or $325 million increase.
Over fiscal 2018, the significant organic growth was driven by storage solution, which increased $207 million or 66% on increased tank and terminal construction work at higher levels of repair and maintenance spending.
And industrial which increased $159 million or 80% on higher volumes of iron and steel spending and increased thermal vacuum chamber work.
Offsetting these significant increases were a $39 million or 15% decrease in electrical infrastructure revenue due to.
The strategic shift away from larger MPC power generation projects as well as lower power delivery volumes, partially offset by higher volumes of power generation package work.
And a 3 million a 1% decline in oil gas and chemical segment revenues as lower volumes of midstream gas processing work was largely offset by higher volumes of turnaround and maintenance work.
Consolidated gross margin decreased to 9.3% versus 8.4% in fiscal 2018.
The improvement was the result of better overhead utilization and the operating performance in the last two quarters of the year.
For the year oil gas and chemical produced a gross margin of 11.3% as compared to 10.4% last year on strong project execution and improved overhead recovery in fiscal 2019.
Storage solutions gross margins also improved significantly to 10.7% versus 8.2% in fiscal 2019.
This is reflective of strong project execution higher volumes and an improved market.
Electrical margins were 7.1% of fiscal 2019 as compared to 7.2% in fiscal 2018.
While we saw strong operating performance in the power generation portion of the business the performance of the power delivery business was below expectations.
In addition, we had a charge on settlement of disputed power delivery contract at low margins on geographic expansion revenue.
Just real margins were 6.8% versus 7.3% last year.
While the iron and steel business performed well during the year fiscal 2019 margins were impacted by the deterioration on the margin on a thermal vacuum chamber project that is nearing completion.
Consolidated Essien expenses were 94 million for the year, which was an increase from the prior year, primarily as a result of higher variable compensation expenses associated with improved operating results. Despite the increase SGN as a percentage of revenue decreased from 7.7%.
In fiscal 2018% to 6.6% in fiscal 2019.
Through the improvements in revenue gross margins.
Leverage the company was able to produce operating income of 37.9 billion net income of $28 million earnings per share were dollar underpinned.
Moving on to our balance sheet and liquidity.
During fiscal 2019, we saw our liquidity increased 76% or 105 million on the improved operating operating results I just reviewed.
We enter fiscal 2020 with a strong balance sheet that includes 90 million of cash and only $5 million of debt. We also have 152 million available under our credit facility, which results in total available liquidity of $242 million.
Our approach of maintaining a strong balance sheet and good liquidity remains we do intend to pursue acquisitions in fiscal 2020, but we'll do so in a manner that allows us to maintain a strong financial position.
Moving to backlog the company produced a quarter and year to date book to Bill a 0.9 on awards of $351 million in the quarter and $1.3 billion for the year.
The company ended the year with backlog of 1.1 billion.
While the company did not achieve a consolidated book to bill above one in fiscal 2019.
This is not an indication of what we can market in fact, the full year book to Bill was 1.1 for storage solutions and 1.0 for industrial.
I mentioned previously.
The larger projects are making up an increasing percentage of our revenue stream.
Increased variability in project Awards comes with this change in revenue mix. When we look at our funnel of project opportunities, we see a larger funnel today than we did when we enter fiscal 2019.
Our current backlog and a strong fall should allow us to continue to grow our business as we move through fiscal 2012.
Now lets discuss fiscal 2020 guidance of revenue of $1.4 billion to $1.55 billion and fully diluted earnings per share of $1.10 to $1.40.
We announced that we entered the year with a strong backlog and improved operating conditions that as John mentioned, we are also in an environment of uncertainty.
Related to the first half of fiscal 2020, we expect the first quarter revenue to be similar to the first quarter of fiscal 2019, but with improved margins. This is normal in our business due to seasonality in electrical delivery and refinery turnarounds.
In addition, the first half the year may be impacted by the timing of capital project Awards and starts.
Therefore, we expect our revenue and earnings to improve as the year progresses.
We are maintaining our gross margin ranges of 11% to 13% for storage solutions and 10% to 12% for oil gas and chemical we're also maintaining our long term range for industrial 7% to 10%.
However, our ability to consistently achieve this range will be dependent on the mix of work.
Power generation portion of the business is operating within our long term margin range of 9% to 12% for electrical infrastructure. However, we continue to work on the operating performance improvement in power delivery.
Our effective tax rate is still expected to be about 27%.
And capex spend to be between 1.5, and 2% of revenues as we continue to invest in the business to support growth initiatives.
We will now open the call for questions.
Yes.
Ladies and gentlemen, if you have a question at this time. Please press the star and the number one key on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key to prevent any background noise. We ask you. Please place your line on mute. Once your question has been stated.
And our first question comes from the line of John Franzreb with Sidoti Your line is open.
Good morning, John Kevin Great quarter.
Thank you. Thank you.
Hi, I actually want to start we just ended on the first quarter guidance sizable drop I guess in the revenue sequentially.
I'm guessing the job profile is the reason why but is it mostly in storage or is it someplace else you're going to see it.
I don't think you're going to see it really in storage.
But I think you'll see it and in the other three segments.
You know.
Steel work is seeing some headwinds right now on the maintenance side.
The oil gas and chemical segment will be impacted by lower turnaround volumes basically no turnaround in the summer months and then electricals.
The power delivery side is impacted by.
Lets peak demand season in the summer. So again, there is no outages and there's minimal work going on there.
So that's OK first quarter be in light as normal.
Okay, just I just.
I was surprised by the magnitude of it I guess.
On the oil gas and chemical side the June quarter, despite sequentially down revenues from the March quarter was substantially stronger could you just address that what's going on in oil gas and chemicals, it's really good number.
Yes so.
Really we had excellent.
Project execution across the segments.
We continued with a good good strong turnaround season, we had other things contributing to the segment, including.
You know engineering work on gas processing has really benefited the segment. So it's just good execution throughout the segment like we've talked in the third quarter.
Religious all pieces of that segment was really performing well we had the same thing in the fourth quarter.
And would your expectations be that would be the higher end of the gross margin profile in 2020.
Yes.
I would expect that.
It will vary by quarter.
The two the 10% to 12% range is still what we believe is the right range. You know if if were able to successfully grow the gas business. Then eventually we may be able to move that range up but.
I think you know.
10% to 11% is is really good performance for that segment considering that I don't know 70, 580% of that segment is reimbursable work. So with that is a little bit lower margin because it's a lower risk.
Okay. I guess, one last question someone else chime in on the fall turnaround season in the expectations.
Kind of just it just came up for great spring, one can kind of walk us through how the laying out now relative to what you're thinking say three months ago and when it comes to changes in the jobs you know what kind of leeway does it give you know how much how much notice. They give you before these you see any kind of size, what changes either up or down.
This is John John .
So our expectation is the fall turnaround season for us will be busy that our teams will be.
Fully employees working on turnarounds and that the growth the growth in individual turnarounds are usually not known to us until.
Sometimes as late as the one that is around starts when they see when they shut the facility down when they start to look into the different pieces of the plant that they're planning to repair and they can understand it they've had some scope growth there or some things that change in their market that maybe gives them an opportunity to lead the plant shutdown first.
A slightly longer period of time and they'll adsense some some scope stood.
Many of the facilities that were going to be doing turnarounds on we're also doing the upfront planning, which may be going on for months before we get there. Sometimes we will know that you know as we go through that planning process that the scopes will be have a tendency to be growing but I'd tell you that probably the hybrid as a percentage of the time is that we don't know until we actually get into the turnaround.
Okay fair enough, thanks, John I'll get back in queue.
Okay.
Thank you and our next question comes from the line of Tahira Afzal with Keybanc. Your line is now open.
Hi, John and Kevin Congrats on a great quarter.
Thank you. Thank you Okay I guess the first question I had.
Kevin in your prepared commentary you mentioned.
The backend loaded nature is largely driven again by really the timing.
From new projects ramping up if you can.
The.
Well imaging its address stuff that's pretty out of your control in terms of when these projects start.
As we look at this year versus last through is then less dependency on exogenous factors so around the same.
I would say this last for.
Pretty highly book going into the year, probably close to 70%, which is a good start.
As for the year now.
We've got a strong funnel as we've mentioned.
So so the I guess, the big variable that could happen is if those large projects get delayed.
But otherwise we feel pretty confident with what.
Guidance, we put out.
I don't think you're going to see Tahira as big.
A revenue build like you saw this year right. The change in revenue from Q1 in 19 to Q4 19, it won't it shouldn't be as dramatic in fiscal 20 as it was in 19 because were entering the year with.
With regard as Kevin said, it really solid backlog position lot of activity in across all of our markets larger projects in our funnel.
We feel very good about a number of them in our position with those projects, but the timing of those awards. You know is the thing that we're trying to we try to handicap with our.
Revenue guidance enough and ultimately our EPS guidance. So if they start to enter the enter our backlog sooner then we'll we'll see obviously higher revenues in the year, but.
Right now our expectation is that our dramatic changes in our backlog.
I'll, probably won't be seen those kinds of things. So you get into late in the second quarter, our second quarter.
Got it that's pretty helpful.
And I guess the second question for me.
You talked a bit about your prospects being strong and pretty if you look at all your probably be treated as Dave said something similar.
I'm just curious I know you've seen some dislocation with some break or competitors.
How much is that helping you on the margins so far or is that something that could be a tailwind.
I think it's you could probably say its a.
There's a little bit of every storage and in each segment.
We've got.
On some of our segments, where we're we're chasing.
Day to day maintenance and smaller projects.
Competition remains pretty stiff, especially with both local players on the on the larger projects I think in some of the.
Major bigger competitors that we that we chase jobs against you know theyre, they're getting busy and selling as having a tendency a little bit to drive some margins up.
And and I think I think other things that our team has done a very good job of really getting our brand out of the market, especially in storage and storage terminals will I think clients are taking us a lot more seriously about the services that we provide and the and the extent of the services, we can provide across that entire value chain. So.
I think the competitive dynamics, it's still a competitive industry, we still have to we still have to.
When when the projects to get in place, we're not him were not handed anything and.
So we continue to have to to to work hard for them to be able to build our backlog and continue to grow the business.
Got it John and I will just quickly said been occurred one I mean based on the fact the prospects for strong.
And it seems like you ran a must read out.
EBITDA mix.
That you had in the past.
Yeah, I guess, you've got some things that helped you in the fourth quarter that might not be there before but what makes you get to the low end of your guidance that seems a little conservative is that all just a question for the macro.
You're not going to call one of us the Sandbagger at this time I was going to go up given the Super Sandbagger.
I think it I think it's probably what.
Something dramatic happens in the macro environment.
Right now I think.
It'd be hard for anybody to handicap, what's going to happen there between the trade issues and in global sort of economic uncertainty. So put that aside I think it's just our normal awards and starts cycle that we it's just part of life, we lead in this industry and so.
Again as handicapping windows.
Things will happen and.
Our outcomes that ended the year will be within or at the top end of our guidance ranges, but we'll see we'll see how that goes.
Got it helpful. Thanks, a lot John .
Thank you.
Thank you and our next question comes from the line of Bill Newby.
Davidson Your line is now open.
Thank you and congrats again guys on a great quarter.
Thank you. Thank you.
You know I guess first just on the award pipeline you guys are talking about the funnel kind of growing versus where you were at this time last year I guess, where are you guys seeing that specifically is it crude or this is a natural gas what what's I guess, what's gotten better.
I would say, it's probably all the above so.
Crude terminal and individual.
Tank opportunities at our terminals or involves a we see.
Storage and terminal opportunities in Ngls, we see.
LNG opportunities both in in large storage tanks that also in.
In the mid scale.
Facilities for peak shaving.
And ship Bunkering, so it's really across that entire.
Energy storage terminal market.
Okay, so that in storage solutions.
In.
Oil gas and chemical we continue to see a very strong market in refining.
Yes, how strong thats going to be will be.
Ill dependent again, where there is a significant scope growth in a the turnarounds, we get into but we fully expect our crews to be busy in the fall and.
What we see what Weve got lined up in our expectations for next spring.
It will be.
Similar to how busy we were in the spring turnaround last year the size of which will is the part that we're one not totally sure all because it depends on the opportunity for growth plus we were very busy last year.
You know we were the on site maintenance contractor for BP as a cherry point facility they had a high spending.
Year last year.
And that and we've talked about this before you know lot of the you know the turnarounds strengths on contracted a contractor depends on who you do business with and so while some years. Your your core client base could be spending a lot of money on their facilities and to next year, they're not but your competitor might be inside a different a different clients facility and thats their year to spend money. So we kind of judged by how busy we keep our people was our utilization rates and so we again, we expect 2020 to be up.
Strong utilization year for for our teams.
Got it.
That's very helpful.
And then I mean I guess.
Seems like a lot of the opportunities you guys are seeing continued to be in storage.
And your I mean, you're starting to get pretty close.
I mean.
At least peak levels of what you guys have done historically in a given year or what can you just talk to your capacity in that business I mean with the with us.
With the capabilities you guys currently have how much.
How much further can you push that before you really have to think about investing in the business in a more significant mean architecture I mean, we're in a good spot in our capacity.
Our projects, there's a slow and lifecycle to our projects in and where we're at today with our.
Backlog, we've got you know have a good cadence between project to project moving teams around.
The strengthening of our engineering business that we did.
Over two years ago with the Houston interest acquisition has really opened up our capacity there on the front end and feed studies and then so you think about whats in our pipeline of opportunities in the ones that we.
Ill have have.
Hi confidence level that we think we'll be able to turn into a contract.
Fits our that's our model fits our bench strength very well and so we'll continue to look for top talent to bring into the organization. We will continue to look for.
Bolt on acquisitions, both on the construction and engineering standpoint that we can continue to drive more volume in that business.
I guess, one more just on that last point, John I mean.
In regards to bringing in.
Top talent are you.
Has the market for kind of project managers changed at all in the last 12 months with all the kind of volatility you've seen at some of your bigger peers are there maybe more people looking to move than there were a year ago or is it still pretty kind of thing no I mean, no I would say the <unk>.
Slowing markets or professional staff.
Is continues to be competitive market out there.
I think you know our.
We talked about here in our prepared remarks, and the things that we're doing from a people standpoint to to create a great work environment Youre a matrix is really about.
Making sure that we can.
Attract some of the best and brightest in the industry and bring them into our organization and we want people that you know when this ties into the think about a career change time to think about where they may have opportunities for their career in for Andrew entered in for challenges in their career that they are going to see see our organization as a as a place that like to come to and.
So I think that's important as we think about how we recruit people and we're we're continuing to do do that today.
Continuing to find where we can find good talent to bring them into the organization in some cases, we're doing that ahead of when we may actually need them. So we're trying to balance that that growth in overhead with what we see in our pipeline and to make sure that weve not linear with not only bringing top talent in but that we're investing in our people that are here.
That makes them.
Great employees and provide them challenging opportunities as well.
Okay.
All right appreciate it thank you.
Thank you.
Thank you.
And our next question.
From the line of John Franzreb follow up question. Your line is open.
Hey, guys just a couple of things.
Last quarter, you talked about.
Exiting the year at a book to Bill closer to 1.0, it suddenly two questions ago.
Maybe the job you expected to come in the fourth quarter has been moved back a couple of quarter and am I understanding that properly or is there something else going on there.
No I don't think is there anything else going on there and Kevin Kevin.
In his prepared remarks talked to you about the.
Storage was over one and industrial was one and the other two segments, while they were up.
Slightly below one of which obviously puts his entire enterprise into a into a 0.9.
We're not concerned about it we've had some wins that we have had some projects that we thought were going to get awarded in the fourth quarter have moved into the first and has subsequently been awarded not major ones, but there are kind of the ebbs and flows of our normal capital projects that come in and out of the business.
And as far as major projects, we had one major project that we thought was possible might come into the fiscal 2019 late in the year as moved out until.
Later in the calendar year.
Mostly related to.
Now the financial structure of that of that.
Clients and how they were going to build their project and so we still they want a very good place related to that project and so we're not we feel very good about our backlog position, we feel very good about our backlog coming into this year and the opportunities in front of us so.
The 0.9.
Exiting the year at a 0.9 is not really a concern.
Okay and I might have missed this also in the electrical infrastructure business did you reset the gross margin expectations Kevin.
And also it sounded like that you're accepting lower price jobs in order to achieve your goal of geographic expansion is that the case and is that why the reset or am I misreading that also.
Yes, I would say that.
First of all on the geographic expansion.
We're going to want to go Inorganically, we've got to prove ourselves we've got to take the work away from somebody else. So.
We may have to get a little more competitive on the pricing when that happens.
That's also monetize reimbursable work, so it may be a little bit lower margin.
And we've got a 9% to 12% longer term expectation.
The power delivery packages were for executing now.
There are definitely supporting it ranges that support that that 9% to 12%.
Power delivery work, we've still got work to do to get.
Yes consistently up in that range.
So I would expect us to move towards that range in fiscal <unk> and fiscal 20, when we get there it's hard to say.
When we when you're working to turn around our business.
It takes some time to.
To achieve.
Okay, and I guess this might be somewhat related cash is starting to build.
We haven't executed on any kind of sizable M&A deal in a while and you see attributed to two we wanted to right the ship.
On the electric side of the business.
Im wondering how is it the pricing of of of deals the unattractive.
Can you just talk about the M&A environment, and how you view it today versus a year ago.
Well I think you mean for us the way we have approached the.
M&A environment, you know might be a little bit different I mean, we're not we typically don't like to enter auctions. We're very focused on the businesses that were interested in.
And we're very disciplined on what were willing to pay.
And so we're we're actively looking at a variety of different into different pieces of our markets and different target companies.
In.
Formal dialogs with with.
A couple of different businesses, and we'll continue to do that but it is definitely our intention to two this year.
If we find the right.
The right strategic fit and the right cultural fit with what was the financial model we look for.
This will be the year that we will be looking for to add some acquisitions into the into the business.
Got it.
I guess, one last question on the M&A side to kind of work with that maybe a midpoint of your revenue guidance. Kevin are we looking at a.
Steady 24 and change is 25 question, a number or were going to start low and build the again as the year progress is kind of like we saw in 2019.
Well so there is a portion of our.
Yes, you know that is variable.
Our our incentive compensation is tied directly to how much money, we're making for the shareholders. So.
So there will be variability each quarter based upon that.
But we also talked about you know as we grow this business, we've got to make the right investments.
So make sure we've got the talents.
And the resources to effectively execute so.
We'll still be prudent in those investments.
But.
You are asking is not going to go back down to the level. It was in fiscal <unk> and fiscal 90.
So, yes, it's still going to probably be.
Somewhere around 25 million and when we get a really good quarter.
Ill hold off a little higher than that.
Okay, great. Thanks for the extra color appreciate it.
Thank you and our next question comes from the line of Noelle Dilts from Stifel. Your line is now open.
Hi, guys congratulations on quarter again.
You know just a quick question.
Sure. Thanks.
Yes, I wanted to get a little bit more detail on how you guys are thinking about the LNG export opportunity and on kind of the timing of some of the larger.
On LNG type projects as well as chemical projects. How are you thinking about the projects that the move into it into 2020.
From a timing perspective, I would say were.
Our anticipation for the projects that we're currently active in the large that some of the larger scale projects that we've either bid tank work into or that we're looking at the entire project as NEPC in the end and to be clear I mean, we're not we're not going to be building multi billion dollar LNG export terminal, that's just beyond our our capacity as an organization, but certainly some of the smaller scale ones for export or four ship Bunkering is within our is within our bailiwick and we will be in our.
Engaged in those at some level so.
The timing on on adding more LNG related work into our backlog of any scale again would probably be no sooner than second quarter. This year, probably into the third quarter.
But we see that as a very smart cards.
Go ahead.
Oh, sorry, I was just a second question finished finished.
You bet.
But we see that as a we've got a very good position in that market as a as a company in the services talent, we have to offer and we believe that that.
The LNG market.
Across a variety of the pieces of that of that of that market will be part of our.
We part of our backlog for for many years to come.
Thank you and I'm not showing any further questions in the queue at this time.
I would now like to turn the call back to John Hewitt for closing remarks.
Yes. Thank you. Thank you everybody for listening to the call today, and we look forward to talking to everybody between now and.
And our next fall thank you very much.
Ladies and gentlemen, thank you for participating in todays conference. This does conclude the program and you may all disconnect everyone have a good day.