Matrix Service Company (MTRX) Q2 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Matrix Service Company Conference Call to Discuss Results for the Second Quarter ended December 31, 2012. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Kevin Cavanah, Vice President and Chief Financial Officer. Please begin.

Thank you. I would now 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 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 30, 2012, and in subsequent filings made by the company with the SEC. To the extent the company utilizes non-GAAP measures, a reconciliation 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 of Matrix.

Thank you, Kevin, and welcome, everyone, to our second quarter fiscal year 2013 update communication. I trust everyone has had a restful holiday and like us, are looking forward positively to the new year. For the 6 months ended December 31, 2012, Matrix Service Company had a total recordable incident rate, or TRIR, of 0.69. Our experience modification rate, or EMR, which is evaluated May 1 of each year, was 0.59 for 2012. While these statistics are considerably below the construction industry average, our entire organization remains committed to a 0 incident culture and mindset. We feel our safety performance is a major differentiator in the markets we serve and represent one of the primary reasons why our customers choose Matrix Service Company over our competitors. We recently completed an annual strategy refresh with the leadership team, which confirms our baseline plan. Overall, we continue to see progress in the execution of our strategy, and we are comfortable with the direction we are headed and the strength of our markets. As we have discussed on previous calls, growth and expansion is not without its risks and challenges, but we firmly believe that the strategic journey we are on is creating a world-class business and driving value for our shareholders. We continue to work hard to minimize risks and challenges, with diligence in our management processes, upgrades and improvements to our systems and procedures, along with driving toward best-in-class employee recruitment, development and training. We are actively exercising and improving these aforementioned core business elements in alignment with the strategic evolution of the business. The leadership team's ability to minimize the downside while maximizing the upside potential is a critical part of our long-term success. These core elements are integral to the success and consistent performance across all of our business segments and services. I say this to you to set the framework for the $0.08 EPS impact we recognized in the second quarter. This charge related to a single project in the Storage Solutions segment as part of our Western Canadian operations. The project contains some estimated elements related to field labor productivity and their associated costs that did not accurately represent the actual costs we are experiencing in this geographic area. Further, the active energy industry in Western Canada has changed the market dynamics for construction labor and its associated costs that added stress to the project. The project, while estimated, proposed and won in late 2011, did not commence field construction activities until the fall of 2012. As such, this skill-related cost issues were not known until the end of the second quarter of this fiscal year. In this specific instance, our estimate development, proposal clarification and review process in place at the time was not diligently followed. Consistent with our strategic growth plans for our Western Canadian operations, we have added a considerable amount of experienced management, including positions in project management, estimating and project controls, over this past year. We are very comfortable that all steps necessary to strengthen the controls environment and minimize these events in the future have already been taken. Additionally, the forecast for this project has been thoroughly reviewed by multiple levels of the organization, checked against other active and completed projects in the region and, therefore, we believe the forecast at completion reflects current market conditions. Further, we have reviewed all projects in backlog and confirmed that the appropriate estimate elements are in place. Western Canada is an area of high growth and opportunity for our organization. It continues to be a region that will be a foundational element of our long-term strategy. We are very diligent in selecting projects that provide us the best opportunity for success. Only the projects which we can staff with top teams of craftsmen and management are targeted. In some cases, we have passed on opportunities in order to better assure our success and strategically control the growth of the business. As it relates to our entire Storage Solutions segment, we continue to identify, bid on and win opportunities throughout North America, both inside our historical core markets and in new geographies. We are pleased that the growth in this segment, as it has exceeded the top end of our growth rate expectation, developed in our strategic planning process. Pipeline activity in North America, including new pipeline construction and repurposing of existing pipeline infrastructure, is part of the driver of this growth. Storage tanks and terminals are needed close to resource plays and at the beginning of the line, along its length, at intersections and at the termination point of the pipeline. The result of this activity, new awards for the quarter of $169.8 million, resulted in backlog at December 31, 2012, of $337.1 million. This represents a 42.5% increase in backlog since year-end June 30, 2012. Despite the one challenging project, we are pleased with the growth of this segment and believe we have the foundation in place for continued success going forward. Moving on to our Electrical Infrastructure segment. While backlog of $118 million at December 31, 2012, represents a slight decline of 7.6% from year-end June 30, 2012, gross profit increased by 45.8% year-over-year for the 6-month time frame. Storm restoration work along with better overhead recovery from increased business volume were the significant pieces impacting profitability in this segment. While the backlog dropped slightly, we continue to see significant opportunities in this segment. Our reputation for quality, efficient work completed in a safe, professional manner continue to serve as our primary marketing tool and method of growth in this segment. As mentioned on prior calls, the Electrical Infrastructure segment represents a high-growth area for Matrix Service Company. We're actively expanding our capabilities and service offerings, as well as evaluating new geographies. Our recent entry into the transmission and distribution business is exceeding our plan in fiscal 2013. In addition to this planned organic growth, we are regularly evaluating and approaching acquisition targets. We are committed to putting acquisition capital to work in this segment. The Oil, Gas & Chemical segment continues to benefit from strong turnaround volumes throughout our markets, as well as capital construction work. Despite backlog being essentially flat at $115.5 million, we remain optimistic about the strength in the turnaround market. At the end of the quarter, we closed on the acquisition of various assets from the Pelichem Industrial Cleaning Services. I can report that integration of these assets and the employees of Pelichem into the Matrix family is progressing smoothly. Located in Reserve, Louisiana, this new industrial cleaning operating unit will continue to work with some of the top refining and petrochemical customers along the Gulf Coast. We expect this acquisition to double our industrial cleaning services revenue and expand our geographic reach. The addition of Pelichem to our family strengthens our ability to provide a more complete range of services to new and existing clients. Our ability to provide more end-to-end industrial cleaning, maintenance and turnaround services is a unique differentiator for Matrix Service and a key component of our growth in this segment. We continue to look for additional acquisitions of this nature throughout our footprint in North America. Lastly, results to our Industrial segment highlight the startup nature of the business that it comprise. While profitability remains impacted by startup costs related to entry into the bulk material handling and mining and minerals markets, we feel the business is gaining traction and a positive reputation. Backlog of $34.5 million is nearly double from what was reported last quarter. We are already working for some of the top names in these markets. And as backlog continues to grow, profitability will improve. We anticipate this segment to meet our expectations for the fiscal year. These businesses remain a key part of our 5-year strategy, and our efforts to build them organically are beginning to show results. I'll now turn the call back to Kevin to discuss the details of our financial performance. Kevin?

Thanks, John. I will start with the second quarter results. We generated record revenues of $221.4 million in the second quarter as compared to $201 million in the second quarter of fiscal 2012. The 10.1% increase in revenues was due to strong growth in our Electrical Infrastructure and Oil, Gas & Chemical segments. Our quarterly net income was $5.4 million and our fully diluted EPS was $0.21 as compared to net income of $7 million and fully diluted EPS of $0.27 in the second quarter of the prior year. Fiscal 2013 second quarter earnings were negatively impacted by a $3.3 million charge, which John discussed earlier. Excluding the charge, our second quarter EPS would have been $0.29. Consolidated gross profit was $22.3 million in the 3 months ended December 31, 2012, versus $23.1 million in the 3 months ended December 31, 2011. Excluding the charge, our consolidated gross margins of 10.1% would have been 11.8% in the current quarter as compared to 11.5% in the second quarter last year. SG&A expenses were $13.6 million in the 3 months ended December 31, 2012, compared to $11.9 million in the same period last year. The increase of $1.7 million was consistent with our plan, which included investments to support our strategic growth objectives, such as expanded operations, employee development, acquisition-related costs, marketing and system development costs. The Electrical Infrastructure segment revenues increased from $43.6 million in the second quarter of fiscal 2012 to $50.1 million in the second quarter of fiscal 2013. The increase was primarily due to increased high-voltage work in the Northeastern United States and a higher level of storm restoration work in the aftermath of Hurricane Sandy. Our gross margins were strong, at 13.2%, in the second quarter as compared to 11.4% in the same period last year. Oil, Gas & Chemical segment revenues increased 34%, to $66.6 million in the second quarter compared to $49.8 million in the second quarter last year due to a higher volume of turnaround work and expansion of our core client base. As a result of the increased volume of work, gross margins improved to 12.1% as compared to 9.9% in the second quarter of fiscal 2012. The Storage Solutions segment generated second quarter fiscal 2013 revenue of $97.6 million as compared to second quarter revenues of $99.6 million in fiscal 2012. The small decrease was due to lower levels of domestic work associated with customer delays in our aboveground storage tank business, largely offset by more work in Western Canada. Gross margins decreased from 12.7% in the 3 months ended December 31, 2011, to 7.9% in the same period in the current year, primarily as a result of the Western Canada aboveground storage tank charge, which decreased margins by 380 basis points. Revenues for the Industrial segment totaled $7 million in the 3 months ended December 31, 2012, compared to $8.1 million in the same period a year earlier. Fiscal 2012 primarily included revenues on a vacuum chamber project, while fiscal 2013 revenues were largely attributable to our startup operations in mining and minerals and material handling. Gross margins in the current quarter were negatively impacted by startup costs. Our startup businesses continued to gain momentum and volume, and we expect this segment to turn profitable by the end of the year. Moving on to our 6-month results. Consolidated revenues were $431 million, an increase of 16.4% from consolidated revenues of $370.3 million in the prior fiscal year. The increase in consolidated revenues was a result of increases in Oil, Gas & Chemical; Electrical Infrastructure; and Storage Solution revenues. Consolidated gross profit increased from $41.2 million in the 6 months ended December 31, 2011, to $44.6 million in the 6 months ended December 31, 2012. The increase of $3.4 million, or 8.3%, was due to higher revenues, partially offset by lower gross margins, which decreased to 10.3% in fiscal 2013 compared to 11.1% a year earlier due to a 90-basis-point impact related to the charge discussed earlier. Consolidated SG&A expenses were $27.9 million in the 6 months ended December 31, 2012, compared to $23.4 million in the same period a year earlier. The increase of $4.5 million was primarily related to our planned investments, including the onetime cost of the branding initiative, as well as investments to support our strategic growth objectives, such as expanded operations, employee development, acquisition-related costs, marketing and system development costs. The company also incurred a bad debt charge of $700,000 in the first quarter of fiscal 2013. Our effective tax rate was 38.2% for the first 6 months of December -- ended December 31, 2012, as compared to 38% for the 6 months ended December 31, 2011. Based upon the current environment, we expect a 39% effective tax rate for the remainder of fiscal 2013. Net income for the first 6 months of fiscal 2013 was $10.1 million, or $0.39 per fully diluted share. Adjusted net income and fully diluted -- adjusted fully diluted earnings per share, which excludes the project charge, were $12.1 million, or $0.46. We earned net income of $10.5 million, or $0.40 per fully diluted share, in the prior year. During the second quarter, our cash balance increased from $17.2 million to $33.2 million even though we funded the $8.3 million purchase price of Pelichem entirely to cash. The cash balance, along with availability under our senior credit facility, provided liquidity of $135.3 million at December 31, 2012. We will continue to focus on the management of our balance sheet to allow us to capitalize on additional strategic growth opportunities. We have seen our business volume continue to increase and our backlog grow, and as a result, we are raising our revenue guidance for fiscal 2013 to between $840 million and $890 million. We are maintaining our EPS guidance of $0.83 to $0.98 per fully diluted share, which includes the second quarter charge. This concludes our prepared remarks, and we would now like to open the call up for questions.

[Operator Instructions] The first question is from Matt Duncan of Stephens Inc.

First thing I want to do is maybe dig in a little bit more on this charge, and if you could just talk a bit more about sort of what -- specifically what cost ended up coming in a little bit higher than you guys had maybe accounted for in the bid. And then, secondly, as you've looked through your backlog, John, it sounds like you've scrubbed it to make sure there are not any other projects where this may occur. Am I correct that it should be an isolated event?

Yes. I mean, in our minds, I mean, we're in a -- in the construction business itself, nothing is absolute and nothing is perfect because there's a lot of variables in our work. But certainly, the better job we do upfront on our estimating and understanding the drivers in the market of what could create some stress on our projects is very important to us. But in this particular instance, we -- some of the assumptions we made on labor availability, labor productivity, what the weather would be like, what the availability of different travel and living accommodations for our crews, so there's a lot of sort of different things that sort of come together all related to labor and labor-associated costs that a year after that we bid the job, when we get into the field, created some problems on the project for us.

John, have you guys started including escalators for that sort of stuff and bids that you guys are doing in Canada today?

Yes. I mean, we have -- this is a -- I think someone had noted that actually in the -- in some of the reports you guys put out overnight. But this is -- even after 4 years, this is still a relatively new growth area for us. The region itself has turned around economically. There's a lot of growth and project opportunities up there so -- which makes the environment more challenging for contractors to work in. So we -- at this point, in our progression up there, over a year later from that project, we've got a much better handle on productivity and labor requirements for Western Canada. We have, through the growth -- natural growth and progression of our building up our bench strength up there, have got more solid crews, we've got more strength in our management teams up there. So we've got a very -- we think, at this point, have got a very good handle on the labor required in that region.

Okay, that's helpful. And then, moving on to the Electrical Infrastructure segment. Can you maybe call out the amount of revenue you guys got from Sandy?

Yes. In the quarter, we ended up with around $15 million of storm restoration work. We normally are going to have $4 million to $6 million of storm work. There's always some small storms. I'd like to point out that, that revenue that we incurred was -- where the storm hit was right where our operations reside, and the customers we are working for are normal customers, those customers that we have contractor-of-choice arrangements with. And so while we are very happy with the performance of that segment, our margins of 13.2% were strong and as we expected.

Okay. And then Kevin, is -- all that storm restoration work, was it done by the end of the year? Or is there maybe some bleed-over into the March quarter?

We -- this is John. We had a couple of our core clients that we do business with, both on the Industrial and on the Electrical side, that we're still doing some minor repair work in their facilities. Some of the facilities there were under 4, 5 foot of water. And so we, as part of sort of -- I would say as part of our normal maintenance operations in those facilities, some of that maintenance is associated with repair from Hurricane Sandy.

Okay. And the last thing, I'll hop back in the queue, in the Oil, Gas & Chemical segment, you guys had really good growth there. Was that predominantly refinery turnaround-driven? Or maybe talk a little bit about what drove that. And then what's the outlook for the spring turnaround there for you guys?

So our turnaround business is continuing to strengthen, and a lot of that, I think, is our ability. We've expanded our client base. We've expanded geographically. We're more vertically integrating our services within industrial cleaning and turnarounds and maintenance. So we're starting to see -- which I think we've talked about in previous calls, but we're starting to see sort of a leveling out of our turnaround business, where we don't go through the dips from quarter-to-quarter that we've had in the past because of the more expansive client base. But -- and then to get to the second part of your question there, we believe the second half of the year will continue to be a strong turnaround environment for us.

The next question is from Tahira Afzal of KeyBanc.

My first question is last time, you nicely provided sort of a growth margin sort of outlook for all your different segments. Would you care to update that, given what you've seen over the last quarter? And specifically for the Storage Solutions business, outside of this charge, where in the range do you think we'll end up falling for the second half of the year?

Yes. So I think that we'll probably be -- like for Storage Solutions, we'll be up in the 11%-plus territory, which is consistent with what we've told you in the past. I think we've told you 11% to 12.5%. And I would just note that if you excluded the one project, our margins would have been in that range this quarter. On the Electrical Infrastructure, we've said 11% to 13%, I believe, is our margin guidance there. We were slightly above that, but we probably have a higher level of storm work. I don't think we're changing that range. We've probably been in the 12% to 13% range for last year, so I think we're still comfortable with 11% to 13%. On the Oil, Gas & Chemical, we provided a range of 9% to 11%. That is something that we've definitely been exceeding the last couple of quarters. It's due to a strong volume. It's due to a better mix of work. That is an area where we're going to be at the upper end of that previous range we gave you.

If I could chime in, Tahira. I think from quarter-to-quarter there are -- projects move around, potentially better or worse margin projects in any quarter. So for us, the evaluation of those ranges is really going to come on sort of an annual basis, where we can kind of get a better picture of the trends and what's going on in the market.

That makes sense. My second question is in regards to the Storage Solution bookings, clearly very strong. Could you talk about regionally where they're concentrated, whether they're broad-based? And then, outside of the bookings you've had, could you talk about what prospective this looks like? Is it -- does it suggest continued momentum of the same level in general? Or should we be seeing a little more lumpiness over the rest of the year?

Well, the bookings for -- in Storage Solutions, there was a particularly large booking in this year, and I would say that some of -- a lot of the strength right now we're seeing is in Western Canada. But we are continuing to book work in a variety of areas around the country. Again, as we said on previous calls, Cushing is a little flatter than what -- if you'd look back historically for our business. But we are busily proposing, winning and executing work in Texas and Oklahoma, up in the Bakkens, into Wisconsin, Illinois, and we're seeing opportunities in a variety of areas as the country tries to rewire its pipeline logistics and find ways to bring sort of Bakken and Western Canada crude to the East Coast to bring more flows down into the Gulf Coast. So there is a pretty expansive area that we're bidding and winning work right now in our Storage business.

Great, okay. And last question is in regards to Kitimat LNG. It seems there have been positive developments on potentially that project going ahead over the last 3, 4 months. Would you care to comment? Is that still a project on the LNG side you'd been focusing on? And given that there've been several new export LNG plants that have been proposed in the U.S, could you talk about whether you've been approached by any of those sponsors, albeit, I know there are regulations there that are still to be approved?

Specifically on Kitimat, I would say our research would tell us that, that project has a low probability of going forward, and it is not specifically on our radar screen as something that's going to be a potential future project for us. The other LNG facilities that are -- that have been talked about, like most things, not all of them will get FERC approval or will have the economics required for them to go forward, certainly, we think Cheniere is at the head of that race. But each of these facilities, export facilities, have storage already when they were import facilities, so the opportunity for more storage to be built is probably fairly low. Our recent research would suggest that based on the projects that have come out that they're going to be converted to an export facility, there's a potential from anywhere from 3 to 6 new storage facilities over the next, say, 2 to 4 years. But we're not heavily counting on that. We're taking that more as an opportunistic thing for us. What we're more focused on in the LNG would be bunkering opportunities, peak shaving opportunities, those types of things which would be sort of a smaller application and one that would be -- we think, there'll be more opportunity in the market for us.

The next question is from Rich Wesolowski of Sidoti. Richard Wesolowski - Sidoti & Company, LLC: Are the productivity rates you're seeing on the headache project representative of what you have elsewhere in Canada or are they much worse?

They are representative of what we see elsewhere in Canada. Richard Wesolowski - Sidoti & Company, LLC: So if they're the same and you've known for a while that as you move away from Cushing, you won't get the same productivity rates, and presumably you bid it at the same productivity rates that you had everything else in Canada, which has not been written down, why is this project different than the rest of the backlog?

I think the evaluation and the assumptions that were made there, which was, again, was early on in our maturity in Western Canada, didn't meet the test at that time that we were applying to other projects, so... Richard Wesolowski - Sidoti & Company, LLC: So it sounds like the Matrix is bidding for the succession of projects in Canada has improved since you won this one, which was a while back.

Absolutely. As I -- as we said in the opening remarks and in one of the other questions is that we have great -- a couple of things have happened. One is we have 12 months' worth of experience of executing projects up there more than what we had when we originally built this one project. We've strengthened our overall team up there. We've got a better handle on the labor, so there's a lot of things that have transpired since that project was actually bid. Richard Wesolowski - Sidoti & Company, LLC: If you add back this $3.3 million of tank profit, as Kevin alluded to, you get a margin well above 11% for the segment in December, which is a sharp improvement from what you've reported in recent quarters. And I'm curious as to what would explain such a quick change, whereas you still have a growing share of your backlog outside of Cushing.

Well, I think as we had mentioned in previous calls, Rich, we're -- and I'm not sure exactly what the percentage of that is, but some amount of the backlog that we've worked off in previous quarters were won under more competitive times. And now so as we start to put new backlog into our -- as we start to put new backlog into our mix, some of those projects have been won with sort of better margins, some of those projects are growing into more multi-tank projects, where there's less competition. As we move out into different regions, we're building and developing a better understanding in crude mixes. So there's a variety of things that occur over time that will help to drive that -- help to drive those margins. And frankly, the economy is getting better. Richard Wesolowski - Sidoti & Company, LLC: Do you have a guess as to what share of your bank -- tank backlog is in Cushing?

Well, I don't have an exact number on that. We've reported to you guys in the past that we think somewhere in the 25% to 35% of our tank work is in the Cushing area. I would say as to Western Canada continues -- specifically, as Western Canada continues to grow, we're seeing a tremendous amount of activity in the Upper Midwest that, that percentage may start to go down towards the bottom of that range. Richard Wesolowski - Sidoti & Company, LLC: It sounds like you had a large tank win that I assume you didn't announce in the quarter for -- at the wishes of your customer. Is this the first of several or many larger tank projects that would suggest that the competition in that realm would be getting lighter?

Well, I can tell you that we are seeing many large, multi-tank packages flowing through our organization that we are currently looking at and bidding. And we would certainly hope that -- and generally on those, the amount of competition -- the number of competitors is lower, so we would certainly hope that with our win rate and our reputation that we'd be able to bring more of that home. Richard Wesolowski - Sidoti & Company, LLC: Okay. And then, lastly, on the same subject, maybe just a broader view. To listen to the bellwether MLPs, it sounds like a never-ending stream of terminal projects. But Matrix had seemed a little surprised that the business is growing from a good fiscal '12. What is your view of the storage investment cycle over the next 3 years? Is that a growth area?

Well, we had always felt it was a growth area. We were a little surprised at the rate of growth, and so -- and we were probably a little bit surprised at the rate of growth specifically in Western Canada and in the Upper Midwest. So in a good way, it caught us a little bit surprised that there was more spending there than what had been anticipated by our clients. We always felt we'd maintain some level of growth in our Storage business. We're just -- we're a little surprised at the rate currently. And right now, I would say, we're -- we think that, that rate will -- over the next -- at least over the next year or 2 is going to continue.

The next question is from Mike Harrison of First Analysis.

Just looking at the guidance, you increased the revenue number by $40 million and put up a fairly strong EPS number this quarter, but then you left the EPS guidance unchanged. So help me understand, are you just being conservative? Or should we view that as a message that you're expecting weaker margins in the second half? If so, in what segments should we expect some margin degradation from the first half into the second half?

Well, first of all, we are not expecting the margins to be declining in the second half of the year. When we're looking at this guidance change, the reason the EPS didn't move with the revenue is because the EPS included the impact of the charge we took in the second quarter, so that's $0.07 on the first 6 months that impacted us, kept us from moving that guidance up.

So just to be clear, you would -- if I'm looking at this on an apples-to-apples basis, I should be adding the charge to your $0.83 to $0.98 guidance in order to get to an adjusted guidance range?

Well, if you wanted to -- so the guidance range, the $0.88 -- or the $0.83 to $0.98, that includes $0.21 for the second quarter. So it includes the charge in it. So if you wanted to say, "Okay, this is what Matrix was going to -- their guidance was excluding the charge," yes, you would have adjust it by the $0.07.

All right. And speaking of the charge, is that -- the $3.3 million pretax that you took, is that exclusively future costs that were pulled into this period? Or were there is some current period costs that were just more expensive than you are estimating and also included in that charge?

Well, so that $3.3 million charge is reflective of the fact that the job turned from what we expected to be a profitable job to a loss job. And any time you've got a loss job, you've got to incur -- record 100% of the loss in the periods you know it, and that's what we did. So in the quarter, it included write-down of any margins we previously took plus any expected loss for the entire job.

Got it, okay. And then, just looking at the backlog in the Industrial segment, you're up to $34.5 million there, and it looks like growing pretty nicely. Can you give any sense for how quickly we should see that turn into revenue? I know your guidance previously has been that you thought you could be at kind of a $10 million-ish per quarter run rate by Q4. Are we moving a little bit quicker than you previously thought?

No. I think we said in the opening comments that the Industrial segment is, for the most part, beating our expectations for the year or what we thought we were going to be able to accomplish there from a revenue and a margin standpoint. And that the -- and like a lot of the rest of our businesses for the projects that we currently have in hand in that backlog, a higher percentage of that will get worked off in this fiscal year.

And as...

Not unlike other parts of our business, where you're anticipating adding backlog just because of the fiscal year as well. So...

And as I look at the kind of implied SG&A cost in that Industrial segment, they've kind of been all over the place. You've had a few quarters where they ran like $600,000 or $700,000. Obviously, the last quarter you had a bad debt expense that was in there. But this quarter, it seemed to be back down to like a $300,000 run rate. So what's a good run rate to assume there? Or is it just best to assume that we're still going to see some lumpiness associated with startup costs there?

I think if that business continues to grow, we expect the SG&A load to be similar to what the other segments would be, so -- which is around 6% of revenues.

But that's several quarters from now?

It is. So if you look at the last half of the year, it's probably going to be a higher percentage than that. But it's probably going to run at around $600,000, $700,000.

The next question is from Martin Malloy of Johnson Rice. Martin W. Malloy - Johnson Rice & Company, L.L.C., Research Division: I'm sorry if I missed this, but when is this problem project in Western Canada expected to be completed?

We're going to be substantially complete with that before the end of the fiscal year. Martin W. Malloy - Johnson Rice & Company, L.L.C., Research Division: Okay. And in terms of the bidding environment right now for Storage Solutions, there's a lot of projects that have been announced along the Gulf Coast dealing with increased NGLs and crudes coming down here from Permian and Mid-Continent. Are you bidding on those type of projects now or are those still out there aways before you would see the opportunity to bid on those?

So the answer to your question is yes. We're bidding on some of them now, and we're expecting that bid flow to continue. Martin W. Malloy - Johnson Rice & Company, L.L.C., Research Division: Okay, okay. And could you talk maybe a little bit about what you're seeing on the acquisition environment and attractiveness of price for acquisitions?

Well, obviously, we'd like to pay nothing for whatever we acquire, so the attractiveness quotient is very low for us. But we're continuing to stay very focused on what we're looking for, and we have a good sense of what we think is an appropriate price to pay for the companies that we're looking at. And depending on what it is, because everyone has a different range and whether it's a private company or public or how it's been brought to market, whether it's via an auction or not. So there's a lot of factors there that sort of affect what the market price is for those businesses. But we are -- we have done one acquisition this year that we talked about, and we have sifted through a lot of different companies. So we're being very diligent and conservative with what we're looking for. We're finding businesses that -- looking for businesses that are very strategic in what we're trying to accomplish, that it can build on our existing suite of services and our skill sets. So we're continuing to look. We're focused on that but we're going to be, as I said, very diligent and conservative on what we're doing.

The next question is from Tristan Richardson of D.A. Davidson. Tristan Richardson - D.A. Davidson & Co., Research Division: Just on the Electrical Infrastructure side. Have most of your crews been redeployed to any of the projects that were either displaced or put on pause as you deployed workers to work with the storm work associated with Sandy?

I don't have any exact numbers in front of me, but a large share of the teams that were working for us, we pulled off of sort of our projects and other maintenance work to deploy into the Sandy -- Hurricane Sandy work. So I can't tell you it was 100% of them, but certainly a large percentage of those people were people that work for us on a normal basis. Tristan Richardson - D.A. Davidson & Co., Research Division: And so when -- would most be back by now towards sort of your normal core projects?

Oh, yes. Through the end of last -- end of the quarter, we were moving people out of Hurricane Sandy, those that had a -- we had another project to go to or -- they're already back to work. Tristan Richardson - D.A. Davidson & Co., Research Division: Okay. And then, on the Oil, Gas & Chem side, historically, there's been a piece of that business that's been small-CapEx-type project work, and I know that the line can sometimes blur between that and the turnaround work. But I'm curious sort of what the market for the small CapEx projects look like specifically for Matrix.

I would say that market continues to -- it's growing for us. We're seeing strength in that market, and it continues to be part of our portfolio. And that -- I think that year-over-year, that small-cap work has grown.

The next question is from Matt Duncan of Stephens Inc.

John, I know I've asked you this one maybe a couple of times in the past, but it seems like that Western Canada AST business is probably growing faster than you guys thought it would. Have you looked again at maybe the possibility of adding some tank fab capacity in that area to maybe help with job margins there in the future?

Our engineering fabrication piece right now related to its support of Western Canada, we -- in our current vision, does -- we do not think to be a stumbling block for us. So we are -- our desire up there is to continue to strengthen our teams and our crews, make sure that we have the best management, staff and controls environment. And what we are more interested in Western Canada to do is to be able to add and bring other services from Matrix into Western Canada to pick up the other opportunities that we are today not addressing.

Okay. So you're going to keep, then, fabricating the tanks down in Oklahoma and then shipping them up there?

Apparently, that is our plan.

Okay. And then last thing for me, back on M&A. In terms of geographical focus for your Electrical Infrastructure business, are there certain geographies that are more interesting to you? It sounds like that's probably one of the key focuses of the M&A strategy. So where are you guys primarily looking there?

Well, we still think we've got room to expand and increase our footprint in the Northeast, so that's an area -- a continued area of focus for us. I will call the Southwest piece of the U.S. is an area of focus for us related to transmission, distribution and substation on a, again, on a union basis and secondarily then into Eastern Canada, the Ontario region and then in the Midwestern part of the U.S. Sort of Pittsburgh over to Chicago is another area of focus.

Well, it sounds like, John, you're focusing primarily or maybe even only in union areas. Have you thought about going with the dual strategy or are you trying to stay a union business?

Related to our high-voltage business and transmission, distribution and substation work, we are focused on a union deployment.

[Operator Instructions] The next question is from Rich Wesolowski of Sidoti. Richard Wesolowski - Sidoti & Company, LLC: Just one more. Your press release states that most of your markets have favorable business conditions, and I'm wondering which of them you would point to that are lagging.

Rich, you must have -- you've got -- you must have a crystal ball at your house because we talked about, somebody's going to ask what most meant. Richard Wesolowski - Sidoti & Company, LLC: I read things too early but...

I think the most is more around a range of traction rather than no traction, so some are stronger than others, some might be a little bit flat. For instance, our material handling business is not as strong as we would like it to be, and some of that is the tactics that we're using to grow and expand that business. And it has been impacted probably more than the rest -- more than in a lot of the rest of our businesses on the uncertainty around the coal power generation. That business was not heavily dependent but had a strong experience factor in providing material handling services to coal mines and coal-fired power plants. And we're starting to expand that into our mining and minerals operation and into other parts of our business. So of all of our business lines, I would say that is the one that would be part of the most or not part of the most.

There are no further questions at this time. I'll turn the call back over to management for closing remarks.

Thank you, everybody, for spending time with us today, and we look forward to talking to you at the completion of our third quarter. Thank you.