Matrix Service Company (MTRX) Q2 2011 Earnings Report, Transcript and Summary

Greetings and welcome to the Matrix Service Co. Second Quarter Financial Results 2011. [Operator Instructions] It is now my pleasure to introduce your host, Kevin Cavanah, Vice President and Chief Financial Officer of Matrix Service Co. Thank you, Mr. Cavanah, you may begin.

Thank you, Christine. I'd like to take a moment to read the following. Various remarks that the company may make about future expectations, plans and prospects for Matrix Service Co. constitute forward-looking statements for the 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 disclosed in our annual report on Form 10-K for our fiscal year ended June 30, 2010, and in subsequent filings made by the company with the SEC. I would now like to turn the call over to Mike Hall, Chairman of the Board of Directors of Matrix Service Co.

Thank you, Kevin, and good morning to everyone. We appreciate your joining us today to discuss the results of our second quarter ended December 31, 2010. Joining me on the call today along with Kevin Cavanah, our Chief Financial Officer; is Joe Montalbano, our Chief Operating Officer, who will be available to answer questions after our prepared remarks. The Board is very confident in the management team at Matrix Service Co. And is very pleased with the caliber of talent in the organization. This is evidenced by the recent appointment of Kevin Cavanah as the company's Chief Financial Officer. Kevin has been with the company seven years, most recently serving as the company's Vice President and Controller. Joe Montalbano oversees all of the company's operations, including engineering, fabrication and business development. The Board is actively engaged in the search for our next CEO and has identified a number of potential candidates, both internally and externally. We expect to complete this process early in our fiscal fourth quarter. We are pleased that the company has continued to operate successfully, following the recent departure of our former CEO and CFO, which is demonstrated with the results for the second quarter and for the first half of 2011. Safety continues to be the cornerstone of the company's success, and we completed calendar year 2010 with the lowest total recordable incident rate in the company's history. Revenues for the three-month and six-month periods increased over the same periods last year. While backlog of $366 million is down somewhat from the first quarter, it remains above fiscal 2010 year-end levels and that of the second quarter last year. In addition, we continue to experience substantial bid volume and improving market conditions in both segments, which supports our longer-term view of a positive backlog trend. The operating results in the quarter and six-month period are in line with our expectations, driven by stronger demand for Construction Services in the aboveground storage tank market and Construction and Repair and Maintenance services in the Electrical and Instrumentation market. Revenue in the E&I market was up 117% for the six months compared to the prior year, and AST Construction revenues increased 34% over the six-month period a year ago. Unfortunately, our Repair and Maintenance Service segments continued to be soft, although there are some signs of recovery. Consolidated gross margins, while lower compared to the same periods last year, increased over the last two quarters as a result of better overhead costs recovery, driven by increased business volume and costs reductions. The cost reductions implemented in fiscal 2009 and fiscal 2010 had contributed to our operating results in the three-month and six-month periods. Our proactive and aggressive changes to our cost structure, necessitated by the economic downturn or slowdown have allowed the company to more fully absorb overhead costs. We will continue to manage our costs to maintain the appropriate resources given the level of economic activity in our business. With that in mind, we are encouraged by the improving outlook in many of our businesses as we continue to see a number of attractive opportunities across our core markets. We continue to see strong demand in the Construction Services segment, and we are also beginning to experience growing demand in the Repair and Maintenance Service segment. The Aboveground Storage Tank business continues to strengthen as a result of several factors. A significant driver of the AST market continues to be the development of the Canadian oil sands and related pipelines necessary to transport crude oil to the Gulf Coast. In addition, the increasing number of finished product formulations requires additional tankage as terminal operators look to improve logistics at their facilities. Finally, global demand for products and security concerns is creating greater demand for export terminals in aviation fuel storage. These factors have combined to drive demand for storage in the United States, improving economics for terminal operators and spurring greater investment in storage assets. Matrix Service remains a leading provider in this market as a result of our quality engineering and construction personnel, and we are well-positioned to respond quickly to the growing number of opportunities. The AST Repair and Maintenance business is also showing some signs of improvement as I mentioned earlier, and we are seeing activity broadly across the United States and Canada. The level of competition in the Repair and Maintenance market, however, remains high, which we expect will result in lower margins in the near term. The Electrical and Instrumentation market for power and natural gas and refining continues to remain a significant part of our growth strategy. We are investing in tools, equipment and personnel to further expand our market share in the Northeast corridor and Mid-Atlantic states. As a result, we are positioned to capture a significant amount of work that is required to upgrade the electrical infrastructure and to connect the growing number of new and expanded energy producing facilities to the grid. We are also targeting opportunities associated with required upgrades of transmission lines and high voltage transformers through our expanding contractor of choice relationships with many investor-owned utilities. Our capabilities also position the company to deliver varying scope in the design and construction of gas-fired generating stations, which we believe will result from the continued development of domestic natural gas shale reserves. Finally, the emergence of new air quality standards will mandate additional environmental control systems at many of our customers' facilities, which we have successfully installed on many previous projects. As we've mentioned on recent conference calls, we continue to have a cautious outlook at the downstream petroleum market. The recent upward trend in refinery utilization rates and improving crack spreads suggests that the turnaround cycle will improve during the course of calendar year 2011. We have a growing number of turnarounds and backlog, and we expect revenues in the second half of fiscal 2011 to be up over the first half of the fiscal year. While the current activity has picked up, the timing of such awards is uncertain, which could have a material impact quarter-to-quarter. The level of competition continues to make it difficult to capture work at attractive margins. We ultimately believe market conditions are likely to improve in the long term as the economy continues to strengthen. In conclusion, we are pleased with the results in the first half of fiscal 2011 and are encouraged by the recent volume of bid activity. We are forecasting the second half of fiscal 2011 to be consistent with the first half of the fiscal year, with our fourth quarter being much stronger than the third quarter. As a result, we are narrowing the range of fiscal 2011 guidance to $0.60 to $0.75 per fully diluted share. Further, we expect gross margins to be slightly higher in the last half of the year. And with that, I will turn the call over to Kevin to discuss the financial results. Kevin?

Thanks, Mike. In the second quarter, the company earned $0.20 per fully diluted share on revenues of $175.3 million compared to $0.17 per fully diluted share on revenues of $150.4 million in the same period last year. Construction Services segment revenues increased to $105.6 million in the quarter compared to $80.6 million in the same quarter last year, as a result of increased demand for our Electrical and Instrumentation services and new aboveground storage tanks. Repair and Maintenance Services segment revenues were $69.7 million in the quarter compared to $69.8 million in the prior year. The volume of Electrical and Instrumentation, Repair and Maintenance Services increased in the quarter, while Downstream Petroleum Services revenues decreased due to lower turnaround activity. Consolidated gross profit was $19.8 million in the quarter versus $18.4 million in the second quarter last year. Construction Services gross margins were 12.1% and Repair and Maintenance Services gross margins were 10% in the quarter. Consolidated gross margins were 11.3% in the quarter as compared to 12.3% in the prior year period. The decrease in gross margins is due to continued pricing pressure, partially offset by improved recovery of construction overhead costs. Second quarter SG&A expenses were $11.1 million as compared to $11.4 million in the prior year. In the six-month period, the company earned $0.32 per fully diluted share on revenue of $327.1 million, compared to $0.34 per share on revenues of $288.1 million. Construction Services segment revenues increased to $203.1 million for the six months compared to $158.3 million in the same period last year, while the Repair and Maintenance Services segment revenues decreased to $124 million in the six months compared to $129.8 million in the prior year. Consolidated gross profit was $35.5 million for the six months versus $35.9 million last year. In the six-month period, Construction Services gross margins were 11.9% and Repair and Maintenance Services gross margins were 9.1%, resulting in consolidated gross margins of 10.8% in the six months as compared to 12.4% in the prior year period. SG&A expenses for the six months were $21.7 million compared to $21.5 million in the prior year. Our cash balance was $43.7 million at the end of the second quarter of fiscal 2011 as compared to $50.9 million at the end of fiscal 2010. The decrease in our cash balance resulted from increased working capital to fund the growth in business volume experienced during the first half of the year. Our overall liquidity remains strong and we continue to fund the business with cash flow from operations. We believe our strong balance sheet and borrowing capacity provides significant financial flexibility to capitalize on emerging growth opportunities. With that, we would like to open the call up for questions.

[Operator Instructions] Our first question is from Fred Buonocore with CJS Securities.

This is actually Lee Jagoda for Fred. Can you speak a little bit about the primary factors prompting the margin reduction in guidance for the balance of the year?

Well, I think that when we looked at the remainder of the year and as I mentioned in my remarks, the outlook is similar to the first half of the year. We felt that a narrowing of the guidance was appropriate. When we first did the guidance and came out with the guidance of 60% to 80% early in the year, there was a great deal of uncertainty in terms of the recovery, whether we were going to go into a double-dip recession, what was going to happen to crack spreads, what was going to happen to refinery utilization. And we had a very wide range at the beginning of the year. As we've progressed and we've hedged through six-months of the year and as we look for the outlook for the second half of the year, we just felt that it was appropriate that we narrow the range.

And then Looking at the Construction side of your business, can you talk a little bit about the types and sizes of projects that are in the pipeline that could potentially add to backlog as we look forward?

Sure. Let me turn that question over to Joe Montalbano to answer. Joe?

Hi, this is Joe Montalbano. And we have seen a considerable rebound in many of the segments in our overall strategy. The Aboveground Storage Tank business continues to the point that many of our traditional clients wanting to expand the amount of storage that they have on hand, specifically in some of the logistically-challenged depots throughout the country in support of pipeline development taking place from the Canadian oil sands and down to the Gulf. The segment continues to be very attractive for us both domestically and in our International segment as well. As Mike spoke to, the Repair and Maintenance business has seen an uptick in volume as the utilization of our domestic products has increased. The frequency of turnarounds as well as the frequency for additional repair and maintenance services has returned to prior levels, while margin levels however, have not yet rebounded prior to the prior to the recessionary period.

Our next question is from Matt Tucker with KeyBanc Capital Markets.

I was a little surprised to see the backlog down sequentially. Could you talk a little bit about maybe where things were a little bit weaker in terms of awards in the quarter?

Well, obviously, we would have liked to see the backlog increased sequentially. But the fact remains that backlog in our type of business and the size of projects that we do is lumpy. When Joe was going through some of the opportunities we have, we're still very confident that the backlog trend is positive. And I would say that the Construction side of the business is where you see much more lumpiness than you do in the Repair and Maintenance segment of the business. And your AST was down a little bit, but not very significant. Downstream Petroleum in the Construction side was probably the area that was down probably the most. But again, it's a very lumpy type measurement and one that we're still confident that the trend is in the positive direction. Joe, do you want to add anything?

The segment that we spoke to earlier, the Air Quality Control business, new regulations are imposing further improvements on air emissions for many of our customers' facilities. The timing of their awarding of contracts, which have significant material comps into them, are still somewhat difficult to forecast and can move from quarter-to-quarter as they make arrangements for the compliance with these new regulatory standards as well. And seasonally within the E&I business, there are certainly seasonal restrictions in terms of taking transmission lines and substations out of service. And, therefore, the commitment for major capital improvements in both the substation and transmission distribution segments can be significantly different from quarter-to-quarter.

Would it be fair to say that the backlog trends have been more positive so far in the current quarter than last?

Well, I don't know if you really can say that. We've obviously captured some additional work in the month of January. But January itself is not a great month, because our customers are for the most part in the process of approving budgets.

Also on the Turnaround side, we see that the Turnaround business is more heavily weighted towards our fourth quarter than it is the third. And we also see some of the capital projects, for which we have bids outstanding, our time which was the fourth quarter and beyond the third. And Mike spoke to that guidance in his prepared remarks.

So is it the turnaround season, is that primary reason for the outlook on the fourth quarter being much stronger than the third? Or could you provide a little more color on that please.

It's contributory but not the sole reason.

Is there any other reason that you think the fourth quarter would be particularly so much stronger?

Well, I think our work up in Canada will come on stream in the fourth quarter. We've had some delays, our customer have some delays as a result of some of the winter months. It's just a better time of the year, and our fourth quarter is always one of our strongest quarters. So there's some seasonality involved in that also.

And our next question is from Matt Duncan with Stephens.

The first question I've got is with regard to the E&I segment. Can you talk a bit more about what's driving the growth, specifically on the Repair and Maintenance side this quarter?

The E&I business serves a wide number of customers, including our domestic nuclear facilities where we have provided upgrades to domestic security capabilities at those facilities, as well as the trend towards significant transformer change-outs. That has been a steady piece of growing business in the E&I segment. In addition, we have spoken in the past as to the commitment by the investor-owned utilities in the Northeast corridor and the Mid-Atlantic states to complete transmission line reliability upgrades, which necessitate the modernization of their substation and distribution. We have also seen with the Marcellus shale emerging that there are many compressor stations, most of which are motor-driven that are significant in size, 10,000 to 15,000 horsepower typically for compressors, who have an extension of their substation capabilities in transmission line in support of those compressor installation is taking place, fueling a significant portion of our E&I business.

And then and I look at the third quarter for a moment, the quarter we're currently in, there's obviously been quite a bit of winter weather up in the Northeast. Is that having an impact on your E&I segment?

Yes, it is. We'll have both the plus and the minus. We do storm restoration work as part of our commitment to our customers in the Northeast. And simultaneously, there are obviously weather-related impact to some outdoor segments of our business. And as Mike spoke earlier, there's a seasonality as to the ability to take substations out of service during the very severe winters in order to maintain the highest level of reliability for customers. So you have those plus and minus elements associated with the weather.

Kevin, on the gross margins for a minute, it sounds like they're going to be a little better in the second half. And I assume that, that trend should continue beyond the second half of fiscal '11. Can you just talk a little bit about sort of what type of gross margin progression you guys are expecting and the margins implied in bids that you guys are putting in right now? Are those better than maybe what you've seen the first half of this year?

Well, I would say that we do expect the gross margins to improve somewhat in the last half of the year. It will be a slow trend to the upside. As the economy recovers, it will have a positive impact on gross margins somewhat. I wouldn't expect it to be huge. Now longer term, speaking about gross margins in the work we're bidding, we still see it very competitive. And I'd ask Joe to comment on gross margins and the bidding.

I would say those segments of our business, which have low barriers to entry continue to have a significant amount of contractors maintaining relatively low margins. So those portions of our business, where barriers to entry are relatively high, there is some pricing leverage that exists on larger-sized, more complicated construction projects. So there's a blend of the two businesses, and Kevin spoke to the overall positive trends. Although not extremely significant, we do expect quarter-over-quarter improvement as the market recovers and our clients continue to release capital spending initiatives.

We would not expect our margins to dramatically improve to the 2007 levels at this point in time, based on where the economy is today and the capital spending plans of our customer base. Our cost structure is very different right now and really helps our overall margin picture because of better applications of overhead, because of the lower cost of doing business. So as volumes increase, that will have a positive impact on margins.

So in terms of the more specialized areas of the business where margins might be improving, talking about large tank work, probably the E&I segment to a certain degree and then the specialty piece of your business, so are those areas where you're seeing a bit better margins?

Those are the segments most likely to produce the gradual improvement in gross margin percentages.

And the last thing I've got is on the acquisition front. Mike, is that on the back burner for the time being until a new CEO is in place? Or are you guys still actively looking at acquisitions?

We are looking at acquisitions that I define as the tuck-in type acquisition, where it will provide a service or a product line that fits our needs or geographic expansion that really is meaningful to the company. We really have on the back burner any large acquisition, the transformational type acquisition until a new CEO is on board. So we're still looking at, as I said, the tuck-in type acquisitions that really make sense for the company.

Our next question comes from Rich Wesolowski of Sidoti & Company. Richard Wesolowski - Sidoti & Company, LLC: Mike, focusing on the Repair and Maintenance business, I'm wondering about changes in the relationship between backlog and revenue. If you look back to '07, the rest of '07, you did $275 million in Repair and Maintenance sales with a backlog between $20 million and $40 million. And today, you're doing, call it, $50 million less than revenue to have a backlog that's 5x that size. Are the projects you're booking today different than those in the past in terms of size, in terms of duration or the type of work?

This is Kevin. We did have a change in how we define backlog. I don't recall the exact timing of it, it may have been '07 or '08. We previously did not include an estimate for the recurring work we've had at a large client facility, where we have people out on site every day of the year. We made that change, and it did increase the backlog recorded primarily in the Repair and Maintenance segment. Richard Wesolowski - Sidoti & Company, LLC: So it's just how you define it rather than anything fundamental?

Yes, that definition of backlog's been consistent for at least the last couple of years. Richard Wesolowski - Sidoti & Company, LLC: With regards to the improvement in AST Construction, would you characterize the fiscal 2011 improvement as catch-up for work that was delayed from the recession or rather the start of a more lasting cyclical improvement?

I really don't think it's catch-up work. I think it's just a changing environment that allows or that is requiring additional storage from our customers. So I think it's a change that is occurring and has occurred and isn't just delays. There are some delays that were put on the back burner and now are in the front burner. But if you look at the Canadian opportunities, some of those were put in the back burner. And now, they're being brought forward. So in that respect, there is some delays or some of the volume is a result of some delays. But there is just an environment where additional storage is needed in this country and in Canada and we're taking advantage of that. Richard Wesolowski - Sidoti & Company, LLC: Mike, is it even in the discussion period yet that you would want to increase headcount in anticipation of any of this tightening, the availability of field laborers?

No, not really. I mean, we are managing our costs to the volume of business. But we are making sure in our evaluations that we don't get caught behind the eight ball, if you will. That we are always constantly looking at our needs. But we are not putting people on in anticipation of what's going to happen six months down the road. Richard Wesolowski - Sidoti & Company, LLC: You've posted strong bookings in the last three quarters, some $500 million without announcing a single project. Are there large projects out there to be had? Are you bidding them and losing them? Are you letting them go by? Or they're just not being let?

I believe all the factors you said come into play. Obviously, we have a sizable market share on aboveground storage tank, but it's not 100%. And many of our customers are seeking multiple-tank packages rather than single tanks, making the total dollar value even more impressive. And we're also staying away from certain opportunities where we have the risks, identified risks associated with those projects that's not consistent with our overall risk policy for our shareholders. So I believe all the things you mentioned come into play to some degree.

We are still being very cautious as to the type of work we're taking to ensure that we're identifying risks to make sure that we really understand them and we're not taking any undue risks. Richard Wesolowski - Sidoti & Company, LLC: Your E&I revenues more than doubled in the first half if you combine the segments. Is that increase mirror the spending increase from your customers? Or is there some company-specific aspect as to why the revenue jumps up?

Certainly, part of that is our ability to successfully negotiate an increasing number of contractor of choice arrangements, which plays to our, worked for us on many more work fronts than we had several quarters ago. And so that speaks to the total number of man hours that we can utilize week over week. Richard Wesolowski - Sidoti & Company, LLC: And I imagine the other part is customers spending more money.

Well, certainly, we see their capital spending programs up year-over-year and quarter-over-quarter. Richard Wesolowski - Sidoti & Company, LLC: Is there anybody in the E&I business that represents, I don't know, 20% or more of sales?

I don't think that's a question we would speak to.

Our next question comes from Martin Malloy with Johnson Rice & Company. Martin Malloy - Johnson Rice & Company, L.L.C.: On the Repair and Maintenance side, just in terms of the competitive pressures that you're seeing there with the activity levels, it sounds like they're improving somewhat. What is causing continued margin pressure when you look out for the rest of this year?

I think it's the number of competitors that are really going after the business. When you start getting into the Repair and Maintenance business, the number of competitors that can qualify for repair and maintenance is significantly higher than the number of competitors that would be there to do large tank projects for instance, or large capital projects. So the number of competitors, the regional location of those competitors make it much more competitive. Martin Malloy - Johnson Rice & Company, L.L.C.: And the Industrial Tank Business that you all acquired from CB&I a while ago, can you talk a little bit about what you're seeing going on in the markets that they serve?

Well, our strategic plan is to offer a full slate of services to the marketplace. Engineering, procurement, fabrication and construction, and do that primarily domestically but with some international flavor. And their addition to our organization allows us to expand our service offering well beyond the tank itself. We certainly acquired cryogenic technologies associated with that. And so there are many specialty type vessel structures, which we are now very capable and responding to. In addition, we are able to provide the overall design and installation of the balance-of-plant, facilities associated with those type of structures. So it has indeed, certainly, broadened our overall service platform to the market. Martin Malloy - Johnson Rice & Company, L.L.C.: And when you talk about small capital projects, the outlook, they are looking somewhat better, would that include this business line?

I would say the project that are in our specialty structures group tends to have a higher dollar value associated with them and tends to have somewhat fewer competitors due to the barriers to entry here in terms of technology. So they will not fall into small cap arena as we define them.

Our next question is from John Rogers with D.A. Davidson. John Rogers - D.A. Davidson & Co.: I just want to follow up for a second on some of the questions about Repair and Maintenance versus Construction Services. Coming into an upturn, I would have thought the Repair and Maintenance side of the business would get stronger, quicker. And you mentioned the increased competition there. Are these permanent competitors that you see staying around? Or they're just here because there isn't anything to do in other end markets?

So each region of the country has its own slate of competitors. We believe that the volume increase in Repair and Maintenance had not risen fast enough to outpace the number of local contractors available to respond to those needs. And as a result, pricing power still resides with the owner rather than the contractor group. And I do not believe that the rate of increase of repair and maintenance work will dramatically change in the near future. While there's low volume, there are still more contractors to do it. And until that changes, the pricing leverage remains with the owners. John Rogers - D.A. Davidson & Co.: And in terms of what you're seeing with your customers, you mentioned expanding capital budgets. Do you expect more opportunities still on the Construction side, and that's where we should see the growth over the next couple of years?

I would think so.

Yes, and I would agree.

[Operator Instructions] Our next question is from Mike Harrison with First Analysis.

I wanted to ask about your SG&A costs. They went up about $1 million sequentially. And you're still kind of in that 6% to 7% of sales range, whereas if I look back to FY '06, '07, '08, you were well below 6% of sales. Any sense on the timing of when we could start greater leverage of your SG&A costs as you see better revenues?

There are two pieces of this. First of all, if you look at the first quarter and the second quarter, we had some onetime-type charges. I think we disclosed last quarter that we've spent about $0.5 million in costs on investigation. In the second quarter, we had a similar level of unusual costs not on the investigation but on things related to change in management. So those are kind of skewing the numbers a bit. And if you take those things out of there, we are moving back toward achieving SG&A below 6%. And 5.5% to 6% is probably where we're targeting right now.

So just to be clear, there were about $0.5 million worth of costs associated with the management change in this quarter?

That was one of the big drivers of that. That $0.5 million is right. Another factor is our revenue volume. As we continue to grow that will also help us get that percentage down.

And then also wanted to ask, probably a question for Kevin. If you could comment on just the capital structure overall. Obviously, no debt on the balance sheet. Just talk about maybe plans for use of cash and any potential share repurchases?

Well, we have maintained a strong balance sheet especially over the past few years. And it's really helped us attain a competitive advantage. And we continue to maintain that strong balance sheet. And at this point, we don't have a planned share repurchase. Although, we'll continue to evaluate the appropriate use of our cash continually. So right now, our capital structure is where we want it.

Let me just add a comment. When you look at our balance sheet and the type of business we're in, we're in the construction business, liquidity is critical. And some of you will recall, when I came here as CEO four or five years ago, we had a liquidity crisis and they are not enjoyable to go through. So liquidity is really critical for our type of business. We want to maintain that liquidity to fund our working capital needs. And you can see the working capital requirements that we had over the six months as the business started to recover and started to grow. They can be significant. We need the liquidity for that. We also want to maintain our liquidity for the ability to do acquisitions and smaller tuck-in acquisitions similar to the S.M. Electric acquisitions and similar to the technology we purchased from CB&I. It was really helpful to have liquidity to be able to do those very quickly. So liquidity is key, and I just don't see the company at this point in time using its resources to buy back stock.

[Operator Instructions] Our next question is a follow-up question from Matt Tucker with KeyBanc.

Your E&I revenues were very strong in the quarter. How much of that was utilities kind of catching up on some O&M spending that maybe had been kind of deferred earlier in the year? Or do you think that, that performance is sustainable? And have you seen that kind of strength continue into the current quarter?

We have seen and have been tracking the needs in the Northeast corridor for utilities to meet certain reliability standards that have been set. These standards are still going to take many years to completely satisfy. And so while the economic downturn will potentially delay some of their spending, you can only for a very short period of time, delay the work that must be done in order to support these upgrades through many of the transmission line projects and higher voltages that are under way, and much of the work that we are engaged in is in complete support of those initiatives. So I see, while the percentages, I'm not speaking to the percentages sustainable quarter-over-quarter, I believe the overall business climate for the E&I work continues to be very strong.

And then on the AST side, we're seeing commentary recently that Cushing storage volumes are very high currently. There's also some of the LNG import terminals are now talking about plans to turn into export terminals. Can you talk about the opportunities that you see around those two markets in particular?

We continue to see our customers excited about the prospects of expanding the storage at Cushing. There continues to be significant increase in the rental rates associated with such storage. And as we look forward for a considerable period of time, we believe that the overall business climate with oil pushing to triple-digit levels will continue to support an expansion process at the depots like Cushing and at other points along emerging pipelines coming down from Canada.

And any opportunities on the LNG side?

By and large, LNG has moved offshore. But we now see some customers significantly evaluating potentials of LNG exports but in a smaller scale than you would for instance in New Zealand and Australia. We do see some reemergence of LNG occurring domestically. At this point, it's several quarters out in terms of projected revenues for the organization.

Our next question is a follow-up from Rich Wesolowski with Sidoti & Company. Richard Wesolowski - Sidoti & Company, LLC: Is it then your position that it's easier to acquire its way into a market outside of North America or rather just enter bid through a local work?

We don't have a singular strategy. We have identified key countries within the Latin American space that we believe there is significant industrial development taking place. And within that industrial development space, there is significant new aboveground storage tank commitments. And so we are evaluating those on a case-by-case basis. And participation of those project, it may include the formulation of partnerships for domestic contracts just as part of our execution plan. In other instances, it will include a greater part of our domestic resources of having direct oversight of the work. So there is no one generic formula of that campaign, our international strategy. But we are excited about the amount of activity in that space.

I do think though that low on the priority list is buying a company in Latin America and turning everything over to that company as a subsidiary of Matrix. We will have some input ourselves in how we do that work. We're not just going to go out and buy a company and say, "Go do it." Richard Wesolowski - Sidoti & Company, LLC: And then secondly, will the improvement in the prospects for your traditional North American business influence how aggressively you pursue both, I would say, cookie-cutter but Matrix' bread-and-butter contracts in foreign markets and also the more unconventional projects in North America such as LNG?

We evaluate our portfolio in terms of overall risk. We look at types of projects we pursue both domestically and internationally for compliance with our risk protocols and we evaluate the availability of the necessary resources to ensure the level of execution excellence that we are constantly known for. So I don't believe there is a single strategy that paints our entire business. By and large, we expect the preponderance of our revenues to be from domestic clients, with sequential improvement in terms of international revenues quarter-over-quarter and year-over-year.

We're not in a position or at a point right now where we have to allocate resources and not do certain type of projects that make sense for us, because we're so filled up with other products that we don't have any resources to complete the work. We're really not at that point right now. So as Joe said, and I think he said it well, we evaluate the risks of all kinds of projects. Some we'll do and some we won't do because we're not going to take those kinds of risks.

Mr. Hall, there are no further questions at this time. I would now like to turn the floor back over to you for closing comments.

Thank you. And I appreciate all of you joining us on the call today. And we look forward to talking with everyone of you after we complete our third quarter earnings. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation