Babcock & Wilcox Enterprises, Inc. (BW) Q3 2016 Earnings Report, Transcript and Summary

Good morning. My name is Lindsay, and I will be your conference operator today. At this time, I would like to welcome everyone to Babcock & Wilcox Q3 Earnings Conference Call. [Operator Instructions] Thank you. Mr. Jude Broussard, you may begin your conference.

Thank you, Lindsay, and good morning, everyone. Welcome to Babcock & Wilcox Enterprises Third Quarter 2016 Earnings Conference Call. I'm Jude Broussard, Vice President, Investor Relations at B&W. Joining me this morning are Jim Ferland, B&W's Chairman and Chief Executive Officer; and Jenny Apker, Senior Vice President and Chief Financial Officer, to talk about our third quarter earnings. Many of you have already seen a copy of our press release issued late yesterday. For those of you who have not, it's available on our website at babcock.com. During this call, certain statements we make will be forward-looking. I want to call your attention to our safe harbor provision for forward-looking statements that can be found at the end of our press release. The safe harbor provision identifies risk factors that may cause actual results to differ materially from the content of our forward-looking statements. Our most recent Annual Report on Form 10-K and our Form 10-Q for third quarter on file with the SEC provide further detail about the risk factors related to our business. Additionally, I want to remind you that except as required by law, B&W undertakes no obligation to update any forward-looking statement to reflect events or circumstances that may arise after the date of this call. Also on today's call, the company may provide non-GAAP information regarding certain of its historical results as well as the 2016 and 2017 outlook to supplement the results provided in accordance with GAAP. This information should not be considered superior to or a substitute for the comparable GAAP measures. B&W believes non-GAAP measures provide meaningful insight into the company's operational performance and provides these measures to investors to help facilitate comparisons of operating results with the prior periods and to assist them in understanding B&W's ongoing operations. A reconciliation of historical non-GAAP measures can be found in our third quarter earnings release issued late yesterday and on our company overview presentation posted on the Investor Relations section of our website at babcock.com. [Operator Instructions] With that, I will now turn the call over to Jim.

Thanks, Jude. Good morning, everyone. On today's call, we'll discuss third quarter earnings and then provide an update on earnings guidance, and our strategic priorities. Consolidated revenues for the quarter were $411 million compared to $420 million in the prior year third quarter. We continue to see slowness in the power markets, which is consistent with our announcement on June 28, and in some areas of the industrial markets. On a positive note, we've increased bid and proposal activity, even as uncertainty in the market has caused some customers to push back start dates for their projects. We are also seeing positive effects from our Power business restructuring that we announced in the summer. This, combined with our sustained focus on overhead cost, is limiting the impact of the current market conditions on our profitability. Adjusted operating income for the period was $15 million compared to $21.9 million in the corresponding period last year, due to lower volume in our Power segment and accelerated intangible amortization expense related to the acquisition of B&W SPIG. This was partially offset by improved gross profit margin in the Power segment and continued reductions in overhead costs. Adjusted earnings per share were $0.24 compared to $0.25 for the third quarter of 2015. Our backlog as of September 30, 2016, was $2.2 billion, which is 10% lower than the same date last year, but up slightly from last quarter. Our business development team continued to pursue many promising opportunities. Our bid pipeline has increased to $3.3 billion from $2.9 billion due to additional power and renewable opportunities and contributions from B&W SPIG. At the start of the third quarter, we realigned our businesses into 3 segments: Power, Renewable and Industrial. Power focuses on the supply of products and aftermarket services for steam, generating, environmental and axillary equipment for power generation and other industrial applications. Renewable focuses on the supply of steam, generating, environmental and axillary equipment for waste-to-energy and biomass power generation. Industrial is the combination of B&W MEGTEC, our Industrial Environmental and engineered products business, and B&W SPIG, our newly acquired cooling systems and services business. We believe this new segment structure will help shareholders better understand the products and services offered by each segment, the dynamics relating to their markets and the value each represents. At the beginning of my comments today, I mentioned the major restructuring of our Power segment at the end of June. The transition into a leaner Power business is meeting our expectations, and we're seeing a strong sense of teamwork and renewed energy within that segment as our employees are embracing the many positive functional and organizational changes we've made. Our Power segment revenues were down compared to the prior year, as expected, due to the longer-term shift from coal power generation to natural gas and renewables in the U.S. Revenues were also impacted by shorter-term issues, such as the mild winter early this year, reduced activity in the Canadian oil sands and market headwinds that affected the segment's natural gas-fired package boiler products. Even with these headwinds, gross profit margin remained in our expected range and was up quarter-to-quarter. Renewable segment revenues increased 43% for the third quarter of 2016 compared to the prior year. Gross profits are up year-over-year due to higher levels of activity in the segment. The challenged project we discussed last quarter had a net benefit of $1 million for the quarter. Lower-than-expected labor productivity caused the project time line to slip, resulting in a $14 million increase in the estimated cost to complete the project. However, this was offset by a probable project-related insurance recovery of $15 million. We expect key project milestones will complete in early 2017. Ramp down of on-site construction personnel began this month and will continue into the first quarter. The Industrial segment revenues nearly doubled from the prior year, due to the acquisition of B&W SPIG. We closed this acquisition on July 1 and have made significant progress integrating this business into our company since that time. We expect to be substantially complete with the key integration milestones by the end of the year. SPIG's third quarter revenue was below our expected average quarterly run rate, due to project timing and a normally slower period in late summer. We expect the fourth quarter to be in line with expectations. As an example of the potential for revenue synergy with B&W's ownership, B&W SPIG, in the first 3 months, has approximately $100 million of new project opportunities that were not in its line of sight as a standalone company. Looking at B&W MEGTEC, third quarter revenues were essentially flat compared to the prior year, despite continued headwinds in the North American industrial market. Uncertainty continues to dampen the industrial market, but strength in international markets and business development efforts are producing stable revenues. And solid project execution and the continued focus on costs are providing strong profitability. Now let me turn it over to Jenny, who will discuss the segment results in more detail and other financial matters. After which, I'll provide an update on our strategic priorities and earnings guidance.

Thanks, Jim. As Jim mentioned, we have realigned our business segments. I will review the financial results in our new segment structure, and refer you to EXHIBIT 6 of our earnings release issued yesterday afternoon for complete historical financial data for each segment. Turning to the third quarter 2016 financial results. The Power segment revenues were $209.8 million, which is an $84.4 million decrease compared to the $294.2 million posted in the same period of 2015. Power's third quarter gross profit was $48.9 million compared to $47.6 million in the third quarter of 2015, an increase of $1.3 million. Revenues decreased as a result of lower oil sands work in Canada and lower power plant retrofit activity. Gross profit margin improved year-over-year due to benefits from good project performance and restructuring activities in the third quarter of 2016, as well as to a lower margin related to a litigation settlement and contract loss in the third quarter of 2015. At September 30, 2016, backlog in the Power segment was $668 million compared to $791 million a year ago, reflecting the market pressures in the U.S. coal and industrial steam businesses, as well as the lumpy nature of international project bookings. Renewable revenues were $123.3 million in the third quarter of 2016, compared to revenues of $86.9 million in the corresponding period of 2015, an increase of 43% driven by higher volume compared to the prior year. The Renewable segment gross profit of $18.6 million in the third quarter of 2016 was $1.1 million higher than the $17.5 million gross profit reported in the prior year third period. This quarter we incurred an additional $14 million project charge for the European renewable energy contract, though, this was offset by a $15 million probable insurance proceeds, putting the project at a net $1 million improvement for the quarter. The backlog for the Renewable segment as of September 30, 2016, was $1.3 billion compared to $1.6 billion as of the same date in 2015. Excluding the challenged project, our other renewable projects are progressing as expected. Revenues in the Industrial segment for the third quarter of 2016 were $76.8 million compared to $38.9 million in the third quarter of 2015, which is an increase of $37.9 million, predominantly due to the addition of our newly acquired Industrial business, B&W SPIG. Gross profit in the Industrial segment was $14.6 million in the third quarter of 2016, a $1.2 million increase compared to $13.4 million in the prior year. Our B&W MEGTEC division third quarter revenues were $38.5 million, essentially flat year-over-year. Its gross profit of $10.4 million was $3 million lower than the prior year, mostly, due to a higher-than-normal gross profit margin in that prior year period. That said, MEGTEC's gross margin for the third quarter of 2016 was 27%, which is right in the range of our expectations for this business. B&W SPIG's third quarter 2016 revenue and gross profit were $38.3 million and $4.2 million, respectively. Industrial segment backlog at the end of the third quarter of 2016 was $233 million compared to $92 million as of September 30, 2015, primarily attributable to the addition of approximately $180 million of backlog from B&W SPIG. As we expect to continue to be acquisitive, particularly, of companies in the Industrial segment, we have begun separating amortization expense from segment gross profit. We believe that this allows our investors to better understand the earnings power of the business, separate from the noncash amortization charges. In the case of B&W SPIG, we incurred $7.1 million of intangible amortization in the third quarter, and we plan to recognize an additional $6.3 million in the fourth quarter for a total of $13.4 million of intangible amortization in the second half of 2016. SPIG-related amortization will drop to $5.8 million in the first half of 2017 and to $3.6 million for the second half of 2017. For the company, SG&A improved $1.9 million in the quarter compared to the prior year, with the additional SG&A from B&W SPIG more than offset by our continued focus on cost reduction. We also saw improvements in equity income due to strong project performance and lower overhead costs in our joint venture in India. The third quarter 2016 effective tax rate for the company was approximately 15.2% compared to 22.0% in the third quarter of 2015. The adjusted effect of tax rate for the third quarter of 2016 was 16.3% compared to 32.1% in the prior year period. Changes in the expected jurisdictional mix of income between U.S. and foreign entities, together with favorable adjustments related to prior year tax returns, drove the effective tax rate lower for the quarter on a GAAP and non-GAAP basis as compared to the prior year. We are expecting full year adjusted effective tax rate for 2016 will be in the range of 33% to 35%, reflecting the impact of a number of favorable discrete items, including Federal manufacturing deductions and tax benefits associated with the acquisition of B&W SPIG. During the quarter, the company's cash and cash equivalents balance, net of restricted cash, decreased $185.9 million to $65.1 million. Significant uses of cash in the third quarter included the acquisition of SPIG S.p.A. for approximately $172 million and the repurchase of $26 million of B&W stock. Cash flow from operations was negative in the period, primarily due to additional costs for our challenged project and movements of project milestones in the future periods, which pushed out receipts from the customer. We expect cash flow from operations will be positive in the fourth quarter. As of September 30, 2016, we had a $44.7 million outstanding balance on our revolving credit lines, which includes $10.6 million under several foreign revolving credit facilities related to B&W SPIG. We remain well below our revolver capacity, and our optimal leverage, giving us continued ability to make quality acquisitions. Now I'll hand the call back over to Jim for an update on our strategic priorities.

Thanks, Jenny. Based on our results for the third quarter and market conditions in the Power and Industrial segments, we reduced our revenue guidance for 2016 from $1.8 billion to $1.7 billion, but we are reaffirming our adjusted EPS guidance of the $0.63 to $0.83 per share. We believe that the power market will stabilize and that our industrial markets will improve as we move into 2017. We continue to expect 2017 adjusted EPS within our original 2016 guidance range. We remain confident in our strategy to optimize our traditional Power business, pursue core growth in domestic and international markets and execute a disciplined acquisition program to drive growth and diversification. We continue to gain traction in these areas. We've had significant success with our restructuring within the Power segment. As revenue pressure continues in this segment, we're confident that we can maintain margins, which we did this quarter and produced solid cash flow. Our bid pipeline increased significantly from $2.9 billion to $3.3 billion. With less than half coming from the addition of SPIG and the remainder from an increase in large power and renewable projects around the world. This pipeline includes a number of projects for which B&W is the selected supplier, but which have not been given the official go ahead. Our acquisition pipeline also remains strong. SPIG represents an ideal acquisition for us, and we expect to close additional acquisitions between now and the end of 2017. Our acquisition team is actively pursuing opportunities to further enhance our industrial market presence and increase our noncoal revenue base. We've completed the first $100 million share repurchase authorization in line with our comments made earlier in the year. On August 4, our Board of Directors approved a second $100 million share repurchase authorization. As of November 2, the authorization remains available. We remain committed to enhancing shareholder value through quality acquisitions. However, if we don't find the right acquisitions at the right time, the authorization is available. As the year comes to a close, we'll be focused on completing our challenged renewable project and, broadly, improving our project execution consistency, continuing to integrate B&W SPIG and capitalizing on the synergies from this acquisition, and closing project bookings to ensure we produce stronger results in 2017. That concludes our prepared remarks. I will now turn the call back over to Lindsay, who will assist us in taking your questions.

[Operator Instructions] And our first question comes from the line of Tahira Afzal with KeyBanc Capital Markets.

Jim, so, I guess, first question is in regards to your qualitative update on 2017. Though, it seems it's largely intact, I think last quarter you might have had a slightly more positive bias. Can you talk about as you, sort of, indicate the same, sort of, guidance again for next year as of right now. Does it, at this point, include any acquisitions or incremental buybacks? Or are we, kind of, at the same spot?

We're essentially at the same spot as we were last quarter. We have not included any additional acquisitions in 2017, nor have we included any buyback in those 2017 early guidance estimates. We continue to feel good about the acquisition of SPIG. I mentioned the increased number of opportunities we see in SPIG. It's only been 3 months, we haven't closed any of those, nor are any of those really baked into the 2017 guidance. I would view that as upside. And we think the industrial markets, we're holding our own with MEGTEC in what's a tough market, if that industrial markets improved, I think we're well positioned to capitalize on that with MEGTEC. Even in the power sector, even though the revenues were down quarter-to-quarter, in Power. A combination of oil sands were pushing out, as well as I think there were some residual effect from the very warm winter which slowed down utility buying. That said, we see some signs picking up late in the quarter, late in Q3 and early in Q4, that perhaps, the warm summer improved coal capacity and coal utilization and could drive some upside and opportunities for us. So we continue to feel very good about 2017.

Okay. Great. And Jim, the follow-up question is, you've done a commendable job of managing your profitability into lower revenues. As you look at the out years, how much more flexibility do you have to the extent revenues are flat to slightly down on market conditions? Can you retain your profitability to a great extent?

So in thinking about that question, I'd break that up into our 3 business segments. So on the Industrial side, we actually see -- we see significant opportunity for revenue growth. Going forward, we'll always keep our eye on overhead costs in that sector. But I would view that as an opportunity, certainly to maintain, if not improve margin as volume rises in the Industrial business. The Renewable business, we continue to see long-term opportunities to grow that business going forward, at least the margins that we've projected. On the Power side, we continue to emphasize efficiency and cost. And you're right, so far, I think we've held our own. That said, we continue to look for opportunities, and we continue to find opportunities to drive costs out of both the Power business and, I would say, our broader SG&A overhead. And we won't back off that even if revenues do stabilize and grow a little bit in that segment in 2017.

Our next question comes from the line of Bob Labick with CJS Securities.

I wanted to start on the Renewables side. If you could just talk a little bit more about the process for the incremental $14 million write-down, what caused that? Where does the project stand? And what's the likelihood of any additional write-downs on that one?

Sure, Bob. Yes. So we -- that project -- and we've mentioned this before, it's relatively complex for us to go back in and retrofit the piping and the steel into what's essentially, a complete plan. And as a result of that, we did experience lower productivity than we had anticipated. We had ramped the number down, the productivity number down already in our original estimates. It turns out it was a little bit lower than that. And that is the bulk of the $14 million difference. That said, we are making significant progress on that projects. And I'll give you a couple of data points. The 2 major systems that we continue to work on, I would classify it as piping and electrical, and we are nearing completion on those. For example, in mid-July, piping was about 39% complete. Today, piping is 83% complete. Electrical in mid-July was 40% complete and today, it's 78% complete. And as I mentioned on the call, we are already beginning the ramp down process of the on-site construction labor which reduces our run rate. So when you put those together, we continue to see the projects finishing up Q1, early Q1 2017, and our spend rate is dropping already. And it will be significantly lower by December, January than it is today. So we remain confident that the numbers we have out there today are doable. And the variability in those numbers continues to shrink as we near completion on the project.

Okay. Great. And then, as my follow-up, sticking with Renewables. Obviously, very good revenue growth in the quarter, the bookings seemed light, I assume very lumpy. Can you talk a little bit about the bookings? And then longer-term, the opportunity for new projects outside the U.K.

Absolutely. Yes, bookings were obviously were light for the quarter. They were actually slightly negatively due to the FX impact on the backlog. That said, I mentioned previously that our bid pipeline has actually increased from $2.9 billion to $3.3 billion. A piece of that due to the inclusion of SPIG's numbers. But a piece of that is actually due to an increased number of opportunities on the Renewable side, including a couple of outside Northern Europe. So that's the first time, I think, we've had significant traction outside our core in Europe, and that's a good thing. We do have a couple of renewable projects that we feel really good about, and we would anticipate booking those in the next couple of quarters. It's just we couldn't get all the Is dotted and Ts crossed on those in Q3.

Our next question comes from the line of Jamie Cook with Crédit Suisse.

Two questions. One, Jim, you obviously reaffirmed the range for 2016, but there's pretty -- that implies a pretty wide EPS potential range for the fourth quarter. So can you talk about whether given where we are today, is the low end more likely? Or what would be the drivers behind the high and the low end of the range? And then my second question is on the Industrial business, I mean, it sounds you think heading into 2017, markets or revenue should be more stable. Is that a function of something you're seeing in the market? Or do you assume when we reach 2017 that, perhaps, there's more market share or revenue synergy opportunity? I'm just trying to understand what you're assuming for the core business versus what you can do about that.

Sure, Jamie. In regards to guidance range, we stopped $0.63 to $0.83. We chose not to shrink it. We're in the middle of that today. And just to give you an example of the potential variability up and down, I actually think, perhaps, it could be a bit more up than down but it could go either way. As we -- although, we are a business with significant backlog, we also have a relatively large book and bill every year, probably, north of $350 million, so it could be $100 million a quarter. A lot of that, for example, comes from the aftermarket parts business from our North American coal customers, which tends to be one of the more profitable segments inside our business. And those numbers, we have found, at least in the last few months, can vary significantly. We were a little bit light mid-summer, we think due do the warm winter previously and the low utilization of the coal plants. That said, the aftermarket parts business has picked up significantly for us later in Q3 and very early in Q4, again, perhaps due to the warmer weather and the utilities having to invest in their units because they ran them more. That creates just simply the aftermarket business. And the difficulty in predicting short-term utility decision-making, right, can move our results up and down. Today, I would tell you that it feels like we have a little bit of momentum on that side, and I feel pretty good about it, but it is a bit difficult for us to predict.

Okay. That's helpful.

Second question, Industrial business stability. We do feel good about our Industrial businesses as we move into 2017. MEGTEC has very much held its own on revenue and does a good job of delivering the bottom line, even in what's been a tough industrial market for us and for most of our competitors. Any sort of stabilization or pickup in the North American industrial market, we are well positioned for it with MEGTEC, and we see some upside with them. SPIG is the other half, actually, a little bit larger than MEGTEC. And we had projected, when we originally made the acquisition, that it was going to be about a $200 million revenue business, about $50 million a quarter. We continue to think that that's where they'll be in Q4 and as we move into 2017, given the backlog that they have. We do see upside in that business. I mentioned that there are an additional $100 million worth of opportunities for SPIG on the table today, but otherwise, might not have been, absent our ownership of them. Our job is to turn those opportunities into revenue in 2017 and '18. And if we can do that, there's upside for SPIG.

Our next question comes from the line of Chase Jacobson with William Blair.

So Jenny, I was hoping you could give us a little bit more color on the working capital situation in the quarter, and your confidence in being able to turn that around into the fourth quarter. And maybe if -- give us any color on the magnitude of how positive do you expect cash flow to be. Can it get you back into, like, a more normal range for the year, maybe, excluding the project charges?

Sure. I think it's important to understand that generally our businesses are cash flowing the way we would expect them to. The 2016 cash flow story is really all about that problem project in Europe, which, for full year 2016, which includes Q3 and Q4, that's going to have a negative impact of about $75 million to $80 million on our cash flow. In part from the increased costs which we have to absorb, but primarily due to those milestone payments shifts, and from 2016 to 2017. So to the extent we're delayed in achieving project milestones, we can't bill our customer and we can't collect those billings. And that -- those dollars don't come in, in 2016 if this -- in our forecast, but we're expecting they will come in, in 2017. Positively, when we achieve those milestones, we'll build the cash and we'll collect it in '17, which actually provides a pretty nice tailwind to 2017 free cash flow. I think Q4 will produce positive cash flow, but because of the story of the problem project, probably not sufficient in Q4 to make the full year positive.

Okay. That's good color. And then, Jim, on the acquisition, I'm interested in these early revenue synergies that you're seeing or early award opportunities that you're seeing. Can you expand on that? Are those in new geographies? Or are those in new markets? Why are there new opportunities versus what SPIG was doing before? And what's the momentum behind that?

Sure. So it's not necessarily in new geographies because SPIG has presence in all of the major markets around the world. But SPIG was comparatively light in North America, relative to their strength in Europe and the Middle East. So the bulk of the opportunities we see are in North America, and there are 3 things that are driving them. Given that SPIG has top-notch technology, it's just a matter of opening the doors. So number one, the B&W name helps. We have a broader set of customer relationships than SPIG had. Number two, our balance sheet helps. There were opportunities for SPIG that were, I would say, moderate sized, $15 million to $25 million and occasionally, the customers would have some concerns about the size of SPIG previously. That concern is alleviated when they're part of B&W, given the size of our balance sheet. And third, we have very specific customer relationships, in particular with EPC, E&C type companies, which are quite often the purchaser of the SPIG product. And we found we've been able, just simply, because we have contacts than they've had to open doors and create opportunities. We would -- we have a lot of momentum on that front today. We have a sales force that's traditionally sold the power equipment, that now has a new product to sell to the same customers. And therefore, they're enthused, and they're the ones that have uncovered the $100 million so far, and we're actively chasing it down.

Okay. And if I could just squeeze one more in. On the Renewable side, you have some good prospects, timing is always the question here. Backlog has started to turn negative year-over-year, just given how strong the revenue has been. I imagine that booking projects in fourth quarter versus first quarter isn't going to have a lot of impact on 2017 revenue. But is it -- what's the -- the timing threshold for being able to achieve revenue growth next year? Is it having to book these projects by the second quarter? Or if they push into early in the third, can they pick up fast enough for the back half?

Obviously, the earlier, the better on projects to impact 2017. Again, as I mentioned before, we have a couple of projects that we feel really good about, right? It's just they need to reach completion even if we have been selected already on them, for us to, both, book it and to start work, significant work on it. So projects that we could pick up in Q4 or early Q1 will have an impact on 2017. By the time we get late Q2, Q3, right, they'll be really helpful for '18, but they won't help us too much in 2017. So we continue to push. Again, moving into '17, we have a nice backlog. We have a large number of projects underway, and we'll continue to emphasize project execution on that front, while we try it to bring in the new work, both, to bolster '17 as well as to build the backlog for '18 and '19.

Our next question comes from the line of Rob Norfleet with Alembic Global Advisors.

So quickly, Jim, you were citing the improvement in the award pipeline which is, obviously, very encouraging, but can you discuss the competitive nature of the market and the impact on pricing? I guess I'm just trying to determine how we should view the margin profile on new work being bid, the as bid margin, per se?

Sure. And that's going to depend upon which segment we're in, so let me talk about a couple of the segments in the bid pipeline and the margins. Starting with the Power business, the traditional coal business. The larger projects that we're bidding are international projects. We've mentioned in the past that we're very selective about which projects in that market we go after. The great majority of the opportunities that are bid, we don't participate in for, simply, the reason that you stated; the competition is too high and the margins are too low and they're not worth winning. So the projects we are pursuing and there are a number of them are at, if not slightly better, than the margins we have today in that segment. So we feel good about the projects we're after. And if we sign them, we think that they'll bring in, at least, equivalent margins to what we have today. On the Renewable side of the business, again, we have a number of projects in the pipeline that we're chasing. Margin profile, much like the margin profile at several projects we've signed, which is good. And I would say the same on the industrial side, in particular, with SPIG who chases the larger projects. We feel good about the margin profile on those as well, right? We just need to sign them up.

Okay. Great. And next I was just going to ask about on the Power side. We hadn't, really heard much at all on regulatory reform that had previously benefited your climate control sales. So, obviously, the coal did tied a lot of this legislation up. But if you look at the existing coal power plants likely to stay in commission, are there any standards in the future that could provide a tailwind?

Probably not, is our view. I'd love to tell you that we saw the -- a big environmental upside, we don't and we don't have any of that baked into our numbers going forward. There is the occasional environmental project that comes back and there are a couple of opportunities out there today actually, that if we could ramp those up in the next 6 months it would have a positive impact for us in our Power business. We don't see any regulatory drivers today that are going to cause a top in that environmental spending. It's a great bulk of the -- the core of our Power business is going to remain the aftermarket services and the retrofit business. And then increased focus, on our part, in chasing the other industrial work that's out there. The best example being that carbon black project that we announced a couple of weeks ago.

Okay. Great. And last question, just for Jenny. Obviously, we had reduced the cash balance because of the SPIG acquisition and share buybacks. I know you have ample room on the revolver, but are you guys going to start looking to tap in the debt markets for some longer-term debt at some point in 2017?

Rob, at this point, we've got a revolver and it's much bigger than the capacity we can utilize today and the pricing under that revolver is very attractive. So in the short term, I think that, we'll probably continue to look to our revolving credit facilities. That's not to say we'll never tap the debt markets, but at this point, I don't see it in the next 6 to 8 months.

And there are no further questions in queue at this time. I'll turn the call back over to Mr. Jude Broussard for closing comments.

Thank you for joining us this morning. That concludes our conference call. A replay of this call will be available for a limited time on our website later today.

This concludes today's conference call. You may now disconnect.