Matrix Service Company (MTRX) Q4 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Matrix Service Company Conference Call to discuss results for the fourth quarter and fiscal year ended June 30, 2015. At this time all participants are in a listen only mode. Later we'll conduct the question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder this conference [technical difficulty] this call could be recorded. I’ll now turn the conference over to your host for today Mr. Kevin Cavanah, Chief Financial Officer. Sir, you may begin.

Thank you. I’d 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 disclosed in our annual report on Form 10-K for fiscal year ended June 30, 2014, and in subsequent filings made by the Company with the SEC. To the extent the company utilizes non-GAAP measures, reconciliations will be provided in various press releases and on the Company's Web site. Before I turn the call over to John Hewitt, President and CEO of Matrix Service Company, I’d like to start with the safety moment. So I am -- I’d like to talk about flood safety quickly here. Floods are a threat throughout the United States and Canada. And during the flood water levels and the rate of water -- the rate water is flowing can change quickly. So I’d like to spend a few minutes talking about some safety tips. So really just five things we ought to do if we were found ourselves in the flooded area. Number one, we had to stay informed. So we should monitor local radio, television, internet and social media, bringing information or updates. Second, we had to get to higher ground. So get out of areas subject to flooding and get to a higher ground immediately. Third, we got to obey evacuation orders. If told to evacuate, do so immediately. Fourth, we need to practice electrical safety. Do not go into any room if water covers the electrical outlets or cords are submerged. And if you see sparks or hear buzzing, crackling, snapping or popping noises, get out and stay out of water that may have electricity in it. And fifth, avoid flood waters. Do not walk through flood waters; it only takes six inches of moving water to knock a person off their feet. If you’re trapped on moving water, move to the highest possible point and call 911 for help. If you’re driving a vehicle, don’t drive into flooded roadways or avoid barricades. Water maybe deeper than it appears and can hide various hazards. If a vehicle is caught in swiftly moving water, it can be swept away in a matter of seconds and it only takes 12 inches of water to flow the car or small SUV and only 18 inches of water can carry away large vehicles. So these are some of the basic safety tips during a flood or safety tips before a flood and after a flood, visit floodsafety.noaa.gov for more information. With that, I’m going to turn it over to John.

Thank you, Kevin, and good morning, everyone. I want to begin this call with some reflection of fiscal 2015. We began the year coming off record revenue, earnings and backlog in fiscal 2014. During the current year, turmoil in energy market created significant challenges and headwinds for those that operate in the industry, all during a time when global economies were showing signs of slowing and the U.S recovery remained uncertain. These headwinds continue to some extent today but looking back on our strategic accomplishments over the past 12 months provides an opportunity to highlight three key elements of our business that reduce the impact of these challenges. Element number one, is we continue to -- we have continued to diversify our business both organically and by way of acquisition. Our electrical infrastructure business continues to grow and represents a one-third of total backlog at the beginning of fiscal 2016. Our expertise in this area from power generation to power delivery provides a significant and steady source of opportunity for Matrix regardless of the overall economic market due to planned electrical infrastructure upgrades. We’ve also successfully transitioned our storage solutions business to a full tank internal provider for oil, refined products, LNG, NGL, and other gases. Despite depressed oil prices, our customers continue to place a priority on planning their storage build out as evidenced by a record 670 million in backlog for this segment. Element two, the client projects we focus on whether capital construction or maintenance related are critical to North American infrastructure in the energy, power and industrial markets. The majority of our top customers are large publicly traded companies that year-over-year continue to engage Matrix in planning, constructing and maintaining their critical infrastructure assets across North America. This fact speaks of the quality of our work and the partnership approach we take to build long-term relationships and is evidenced by over 1.8 billion of new awards in fiscal 2015. And finally element three, we continue to improve our service offering by recruiting, retaining and developing our people and upgrading our systems and processes to deliver at the highest quality. Specific to fiscal 2015, the year was a record for Matrix in terms of safety, revenue, new awards, and backlog. We were awarded two foundational projects for fiscal 2016 and 2017, the Napanee Generating Station in Ontario for TransCanada Energy and the gathering terminals associated with Energy Transfer Partners’ Dakota Access Pipeline. We consolidated our Union operations under the Matrix NAC brand and opened a new office in Chicago to serve as its headquarters. We bid, won and executed turnaround and maintenance work in areas of the country new to Matrix. We also reorganized our turnaround in plant maintenance division to provide our customers with an integrated single source solution for all their facility needs. The performance in our industrial segment for the year was exceptionally strong across all service lines and exceeded our margin expectations. And we make significant investments in our people and leadership, training and development, and streamlining our processes and in identifying and implementing best practices that will benefit our customers and our shareholders. [Indiscernible] the year was certainly not without its challenges. In safety, while we achieved record results with a total recordable incident rate of 0.60 which places us among top leaders in the industry, this achievement comes with deep reflection on the fact that we lost one of our own in the job site incident earlier in the year. This loss serves to strengthen our resolve to realize and maintain a zero incident culture. Our team worked diligently to complete the Calpine Garrison Energy Center, which was an acquired EPC project. We achieved substantial completion on this project in June to the satisfaction of the client. Performance in our oil, gas and chemical segment was impacted by refinery strikes as well as decisions to delay turnaround to take advantage of lower crude prices. We also experienced project delays relating to regulatory permitting that impacted our storage solutions segment. Against that backdrop, I’d like to thank the employees of Matrix for their hard work and dedication through a difficult year. We’ve an exciting future ahead of us and I appreciate their hard work. I’ll share more about our markets and bidding activity after Kevin reviews fourth quarter and full-year financial results. Kevin?

Thank you, John. Let's start with the results for the quarter. Revenue was $370.5 million, which was higher than last year’s revenue of $344.4 million, primarily due to the electrical infrastructure in oil, gas and chemical segments. Overall gross margins of 10.9% were impacted by the completion of the work at the Calpine Garrison Energy Center flowing through the books at zero margin as well as lower margins in oil, gas, and chemical segments. SG&A expenses were $22 million in the quarter, which was in line with our expectations, and lower than the same quarter last year. SG&A as a percentage of revenue was 5.9% in the quarter as compared to 6.6% in the quarter last year. Earnings per share for the quarter was $0.40, which was up from $0.28 in the same quarter last year. Project awards of $545.8 million in the quarter led to a book to bill of 1.5x, bringing total backlog to $1.4 billion. Moving on to our segments. Gross margins in our industrial segment were strong at 15.2%, which exceeds our normal expectations. I will share more on this later. Quarterly revenues for the segment were down year-over-year to $55 million as we experienced challenges in our mining, minerals and metal businesses that John will discuss shortly. This is also evident in backlog for the segment which decreased to $123 million on $34 million of awards in the quarter. Regarding performance in our storage solutions segment, while revenues of $132.9 million for the quarter were lower than the same period last year, gross margins of 13.6% demonstrates strong execution. We recorded a record backlog in the segment of $670.5 million due to awards of $395.1 million in the quarter, including the Energy Transfer Partners award John spoke to earlier. Revenue of $80.8 million for the oil, gas, and chemical segment was slightly below our expectations for the quarter, partially impacted by shifting turnaround schedules. Gross margins were 7.9% and backlog was $133 million. Results for the electrical infrastructure segment were as expected for the quarter. Gross margins were 7.4% for the revenue for the quarter, reflective of our completion of the Calpine Garrison Energy Center within our previous forecast. Backlog decreased as the mapping project ramped up in the quarter and the Calpine project reached substantial completion. Regardless of this, there were $36.4 million of new awards in the quarter and backlog ended the year at $487.9 million. On a consolidated basis for the fiscal year, revenue of $1.35 billion represents a record for Matrix. SG&A decreased 5.8% of revenue as compared to 6.2% last year. Earnings per share for the year were $0.63. Excluding the impact of the Calpine project and the related impact on incentive compensation, our EPS would have been $1.30 for the fiscal year. Next let’s discuss liquidity. As of June 30, 2015, our liquidity stood at $174.8 million, including $79.2 million of cash. The loss related to Calpine project has constrained availability on our line of credit, but this constraint will be eliminated over the next three quarters. That said, we’ve sufficient liquidity to achieve our business objectives, which include maintaining our financial strength in an uncertain market, funding working capital and capital expenditures, pursuing bolt-on acquisitions and stock repurchases. Reiterating our guidance released in July, we expect revenues for fiscal 2016 to be between $1.4 billion and $1.6 billion and earnings per share to be between $1.45 and $1.75. A few reminders about our guidance. Based on the strength of our backlog, we expect the electrical infrastructure and storage solution segments to support gross margins in the range of 11% to 13%. Margins in the oil, gas, and chemical segment should be improved over fiscal 2015 and we expect them to be between 10% and 12%. Regarding industrial, strong project execution has allowed us to exceed our expectations past couple of years. However, given the current market conditions, particularly related to our mining, minerals and metals business, we expect gross margins in the segment to be in the range of 6% to 8%. The low end of these ranges represent our normal margin performance based upon our current backlog in project opportunities. The upper end represents the potential in each of these segments depended on project outcomes, timing of work, and absorption of overhead. With that, I'll turn it back over to John.

Thank you, Kevin. Discussing our markets more specifically, as evidenced by the Dakota Access Award, our storage solutions business continues to see robust growth and a transition to larger EPC terminal projects. Our engineering group, Matrix PDM is working on six feed studies for LNG related projects and bid flow remains strong, for our tank construction crews are busy across the United States. As I mentioned earlier, these projects are key elements of our customer’s long-term strategic plans. Overall, North American pipeline activity is forecasted to be strong over the next three to five years. And as such, Matrix is in a leading position to take advantage of the tanks and terminals associated with this pipeline activity. However, we are seeing some softness in Western Canada, as customers reevaluate the timing of key projects. Moving on to electrical infrastructure, construction on the Napanee Generating Station is progressing well. We are pursuing several power generating project opportunities with the intention of adding additional backlog later in the fiscal year. Regarding our power delivery business, our fiscal first quarter is typically the slowest period in the year as utilities are running at their summer peak. With that noted, the bid flow we are seeing continues to suggest a robust environment ahead for substation and distribution work, supportive of our budget in this area for fiscal 2016. We were actively pursuing acquisition opportunities in this phase that add geographic diversity to our footprint and allow us to bring our expertise into new markets. In the oil, gas, and chemical segment, the mark for turnaround services appear strong for fiscal 2016 and 2017. Fully integrated oil companies are reducing spent were possible to offset reduce cash flow from their production businesses. Non-integrated refiners continue to enjoy increased margins and were possible of postponing turnaround work to maintain higher utilizations. Despite of these market conditions, we expect the fall and spring turnaround season for Matrix will be an improvement of those realized in fiscal 2015. We continue to add value in this segment and others by offering integrated lifecycle solutions. Most notably, new construction pre-commissioning, advanced chemical and tank cleaning, inspection and repair. As mentioned earlier, we’ve worked to realign the pertinent business units within Matrix to facilitate these strategies. Moving on to exceptional performance in the industrial segment in fiscal 2015 will be tough to repeat in fiscal 2016, as we face strong headwinds related to our steel and mining and metal businesses. Our steel customers are suffering from a strong dollar position and aggressive supply from China. Our mining and minerals customers are reevaluating capital spending in mine maintenance plans in the phase slowing global demand. We expect our mining and minerals customers will look internationally for most of their CapEx cuts, but we do expect some pullback domestically. Although we are actively tracking several fertilizer projects in the U.S., we’re yet to replace the one currently in backlog. Until then, we expect performance in this segment to be on the lower end of our margin guidance we’ve previously provided. I’d like to reiterate that despite the challenges of this past year, Matrix demonstrated the strength of our strategy and leadership, we continue to execute against the strategy to diversify our business and strengthen our balance sheet. We made and continue to make significant investments in our own internal infrastructure to improve our systems, identify and implement best practices at every level of operations, strengthen our leadership and invest in our employees to ongoing training and development. Despite the year’s challenges, we achieved record safety, revenue, and new project awards and backlog. Matrix Service Company is stronger than it’s ever been and will continue to get stronger. We are excited about the opportunities in front of us. And with that, I’d like to open the call for questions.

[Operator Instructions] And our first question comes from the line of Mike Shlisky of Global Hunter. Your line is open. Please go ahead.

Good morning. This is actually Leigh Pressman on the line for Mike Shlisky. I just have a few questions for you guys.

Good morning.

The first one would be could you provide a little bit more color on what you’re seeing with fertilizers? I know you said you haven’t yet replaced the big one that came out of your backlog. But given the -- somewhat difficult landscape in the agricultural world, is that causing pressure in finding new projects there?

So we’ve -- we continue to have some of the backlog from the Orascom project in our work plan for 2016, although it’s a much smaller percentage than obviously what’s flowing through the books over the last fiscal year. So we have some that we’re still working off here, but we should be pretty much complete in off that project short of us receiving any other work on the job by the -- probably the end of this calendar year. But we’re tracking four or five fertilizer projects. We have either bids or are doing some small feed work for some of those fertilizer clients. We’re seeing some of those projects, I’d say move around on their timing of their awards. So the ones that we’re focused on that are in our bid funnel, we feel as confident as we can in this market that they’re going to go ahead. It’s going to be about our ability to win the work and support our clients to put those projects in place. So we’re not -- we’re certainly not in a position today to write-off the potential for the fertilizer business on to the future. We are fairly confident that we’re going to be able to add something into our backlog sometime this fiscal year.

Okay, great. Second question for you guys, if you could talk a little bit more about the opportunities in the storage solutions segment going forward? Has anything changed the extreme low oil price environment we’ve seen recently? Are customers looking for more flexibility with their supply and could we maybe see more orders going forward?

Yes, I don’t think we’re not seeing any sort of material impact to the bid flow for our storage business, the tanks -- either tank specifically or terminal opportunities. To some extent it could be a combination of market, movement, and our ability to sell our expanded services to our clients. I think we’re actually seeing some larger full tank in terminal projects in our bid funnel. But our pure tank only business I think is continued to be strong. I’d say we haven’t seen a lot of changes there over the last 12 months.

Okay, great. Thanks guys. I leave it there.

Thank you.

Thank you. Our next question comes from the line of Tahira Afzal of KeyBanc. Your line is open. Please go ahead.

Good morning folks and congrats on a good quarter.

Thanks, Tahira.

Thank you.

You know first question is, I think John your commentary on the end markets was reasonably balanced mix spend. But at the same time as you mentioned there are some pretty large opportunities out there and I think you and I to some degree might be tracking the same one. Do you feel these are enough for you to potentially grow backlog into fiscal year ’16?

Well, I think we’ve talked about in the past is that as our business across our segments changed the sort of quarter-to-quarter up and down in our backlog is going to be something that I think you guys and our shareholders are going to have to get a little more comfortable with. So some of that has to do with capacity on our part, making sure we’re delivering high quality on the backlog that we do have -- that we’ve got a eye on our clients -- our clients’ relationships and our safety, so -- but I think we feel fairly -- we’re very comfortable with where we’re today and our ability to achieve our guidance in 2016 and we see enough opportunities out there to replace our backlog and grow our backlog to over the course of the next 12 months.

Got it, okay. That's what I …

So it’s going to be -- so I think there is more risk, if you want to call it in our ability to win the work and make sure we have the capacity to perform the work and there is lack of opportunities.

[Not so] [ph] good situation in this market, John. So, second question in regards to your margin guidance. From what I can tell this range hasn’t changed much, so I’d assume that within that, what you are really putting in is really, as you said execution and utilization. I’d assume there is very little pricing?

I’m sorry; I missed the last part of that Tahira. You’d assume there is what on pricing?

I assume that your margins are more driven by utilization than pricing improvements, so any uptick in pricing. Would that be the right way to look at it?

I think overall that’s probably true, especially for electrical and storage. There is a small piece of our oil, gas, and chemical is focused on upstream and that’s probably pricing is a little more difficult today and John mentioned some of the headwinds in the industrial segment, especially in the mining and minerals and metals and definitely pricing is going to be a concern for our customers there.

The other area too is and we mentioned that we’re seeing some softness in Western Canada. So that -- while there continue to be some fairly strong bid flow up there I think because of the drop in the price of oil and its impact on oil sands work we are seeing more competition I think than we have in the past couple of years in the tank and terminal business in Western Canada even down in the lower parts of Alberta. So it’s -- that’s going to be little more competitive up there for us.

Got it. Thank you, folks, and I’ll jump back in the queue.

Thank you. Our next question comes from the line of Matt Duncan of Stephens. Your line is open. Please go ahead.

Good morning guys. Nice quarter.

Good morning.

Thank you.

So John, I was hoping maybe to piggyback on some of the questions about just outlook for backlog growth, specifically in storage, the Dakota Access win is obviously a big win. I’m assuming that that’s the full terminals and not just the tanks. And you mentioned that you’re seeing other large opportunities like that out there. Are there some that you feel pretty good about your ability to win? And as we look out sort of a year from today, is it your expectation that storage backlog specifically would be up? And the reason I’m asking is I think there has been some concern that you guys would be impacted by oil being lower. It doesn’t appear as though that has been the case. I just want to make sure we have a clear view forward on sort of what we should expect from a storage business.

So the Dakota Access job is full -- the full terminal, so it’s the tank and all the balance of planned work around six different sites on the Dakota Access project. You need to think of that, it’s a big award, $330 million, but there is -- I don’t recall the number, but we just take that as the tank portions of that work probably represent maybe almost 20% of our annual tank volume. So it’s a combination of both pieces of the -- or the two legs of the three legged stool that we talk about or four legged stool that we talk about in our storage solutions business. As it relates to tanks only in our tank only business, I mean we’re continuing to see opportunities, majority of our clients, again as we’ve said in the past, I think probably more impacted by regulatory issues and they have been on the price of oil. We’re seeing very strong pipeline, continued pipeline buildout over the next several years. Those pipelines are going to have tanks and tank terminals associated with them at different portions of their routing. So, we’re continuing to stay very comfortable and confident on our ability to build on our tank only part of our business as well as our tanks and terminals. So at this point from what we’re seeing in a market and given the price of oil that -- and throw into the mix the different types of storage that we’re able to provide services on. So just not on the crude piece but also in cryogenic related applications as well. So we feel pretty good about the bid flow and our opportunities there to win our fair share and continuing to keep a strong backlog.

Okay. So generally speaking obviously its going to depend on timing, but you would expect that backlog should continue to grow here?

Yes, again I would not -- I wouldn’t be hanging your head on every quarter, you’re going to see our backlog grow, but I think as we’ve talked in the past our long-term trend we think in this segment will continue to build.

Okay. Yes, that’s the point I was trying to get across. And then, just Kevin on the sort of build of the model for this year to make sure we understand sort of how these big projects are ramping, you got both the Napanee Generating Station and now that it could access terminal work. At what point should quarterly revenues sort of plateau on those two projects, and how do you expect that to ramp as we move through the year?

So I think the -- on the Napanee project we’re what six months in, and it’s a 30 plus month project. I think its going to probably be at its peak in the third and fourth quarter. On the energy transfer projects we’re in engineering, we’ll be starting fabrication fairly quickly. But fieldwork really doesn’t start until the last half of the year. So maybe towards the end of the year is when it starts to hit its peak, maybe its more in ’16. It will still be a good contributor in ’15, but its -- it will be a big contributor to next year too.

Okay. And then last thing guys, just on the M&A outlook John you talked about this a little bit in your prepared comments, but can you tell us sort of what type of opportunities you guys were seeing, and as you think about capital allocation, are there certain types of businesses you would prefer to be buying? Are there certain segments that you’re really targeting? It sounds like maybe electrical is the key, am I hearing that correctly?

Yes, so I’m not sure anything specifically has changed the opportunities we’re looking at. We’re continuing to take a fairly conservative view, the priceless acquisitions we’re continuing to look for geographic expansion in several of our segments. And specifically in electrical, we’ve talked in the past and our, then the delivery side of our electrical infrastructure business, our ability to really significantly grow that is going to be based on geographic movement. And I think through the course of this year where we were integrating our union businesses both our traditional business and our new acquired businesses, we’ve really had and that businesses had to deal with the Calpine generating station challenges. They really have not been focused on adding any additional businesses to their service offering. So I think within ’16 there’ll be more -- we will have more of a focus on trying to grow and expand that electrical delivery piece of our business. So that’s kind of why we really kind of brought that up in the script. But on an overall basis we’re continuing to look at bolt on opportunities to support all sections of our business, whether that’s in specialty services, whether that’s in providing additional construction capabilities in different geographic regions in North America. Products, we’ve talked before about tank products as an area that we want to increase our capabilities and bench strength. So its -- I would say nothing has really significantly changed. We’re continuing to have a conservative view on all of those and we would hope -- again hope to execute something within this fiscal year.

Got it. Thanks.

Thank you. Our next question comes from the line of Martin Malloy of Johnson Rice. Your line is open. Please go ahead.

Good morning. Congratulations on a solid quarter.

Thanks, Martin.

I wanted to ask about the LNG prospects that are out there. You’ve mentioned that you’ve been pursuing some projects for the last couple of quarters, and my sense is its getting difficult to sign these off take agreements here. Can you talk a little bit more about the likelihood of these projects going forward and the timing?

So the ones that we’re -- we’re focused on a variety of types here. So we’re looking at a couple of projects that are would be pure export terminals, we’re looking at some projects that are transshipping points for transportation fuels or for either on land or at sea transportation fuels and, so we think we do a fairly good job of picking on the projects. They got the best chance to succeed either through their financing, their off take agreements or their per rating status. So we again, we would -- we think its from what we’re looking at, this is going to be about our ability to win the work while there’s not a lot of competition in that market for the services that we provide around cryogenic storage. There is some -- I think some heightened competition just related to the people that you provide that storage, that capability between a CB&I and Bechtel. And I think probably the challenge for us is going to be those guys as international specifically CB&I as a international player is going to be looking to build its backlog and its revenue based on the work flow that’s available in North America. But we’re pretty confident on our ability to win some of that work and again we would -- that we have an expectation that we’re going to be -- we’re going to add more cryogenic related storage projects either in tanks or in some parts of their balanced plan of terminals in this fiscal year. So that’s kind of where we see that.

Okay. And then, if we could just talk about refinery turnaround outlook, the refineries have been doing pretty well for a while now and I get the sense that, that there has been some deferral of some projects that could have taken place. Can you talk a little bit more about what's going on there? Is there a pent up demand that you see eventually positively impacting you all?

Well, our guys are feeling -- that’s why we said, I mean its -- and we’ve said in the past that we think its -- that’s difficult to giving you a barometer check on the overall refinery turnaround Martin without talking about the individual companies, depending on who their client base is. Our guys feel fairly comfortable based on our client relationships, what we see in the bidding pipeline that the second half of our fiscal year will be a -- it will be a stronger turnaround period for us than it was a year ago, and we see some strength in this fall as well. So for sure there’s got to be some pent up demand, refinery delays and movements that we talked about that affected our business last year from the strikes and from the low oil price opportunities to raise our utilization rates that eventually puts off the inevitable. And so the question is, when does the inevitable happen? So plus, we mentioned in our script, we’ve done some reorganizing of our individual business units where we’re able to continue to provide more value added services in specialty cleaning and waste minimization and some other things related to refineries operations and we’re just starting to see that gain some traction with several of our clients and we hope over time that will continue to build some of our revenue stream.

And does that realignment, does that apply to pursuing opportunities on the Gulf Coast with as well?

Yes, I think we had -- I mean, we’ve talked about in the past I think, our refinery business -- our refinery turnaround and maintenance business has really been a mid continent West Coast business. While we would occasionally do some work in the Gulf, the Gulf is a much more competitive market. But we’re seeing more opportunities down there. I think with our ability to provide these vertically integrated specialty services is creating some differentiators for us in that market in the Gulf Coast. So, I think over time we will slowly grow our presence in Gulf Coast refineries.

Thank you.

Thank you. Our next question comes from the line of Robert Connors of Stifel. Your line is open. Please go ahead.

Hi, guys. Can you hear me?

Yes. We hear you fine.

Okay, sure. One of -- I believe it was about a year ago that you guys stated one of your corporate goals was on the SG&A line to reduce it to about 5.5% of revenues on a trailing basis. That’s far over even over the past year you’ve done a pretty good job of reducing the SG&A there. Just still wondering if you guys still believe that goal is still attainable and whether it would be sort of a ’16 or ’17 type of event?

Yes. So I think we’ve -- we made good progress this year on SG&A, it’s below 6%. We were 6.2% last year at fiscal ’14. So we feel like we’re on the right track and getting 5.5% is still something we’re shooting for and think that is something we can achieve.

Okay. And I guess, as far as the other thing that I think escapes peoples mind is the fact that you’re also making pretty good strides on reducing the working capital that’s tied up in this business and that continues here, but some of these large projects start to transition can feel, can we expect to see a working capital built here in ’16 or do you expect it to remain pretty low relative to history where its at?

So I appreciate you noticing the improvement in working capital that’s some we worked hard on and when we look going forward, we ended the year around 4% working capital. I think we can continue to take that down, that’s our goal is to get it down to say 2% or originally to zero. And with the backlog we have, the projects we have, we’ve tried to make sure we’ve considered the cash flow on those projects as we’ve been contracting on. So we expect that the make up of our backlog should allow us to continue with our trend in working capital.

Okay, great and congratulations on the quarter.

Thank you.

Thank you.

Thank you. Our next question comes from the line of Dan Mannes of Avondale Partners. Your line is open. Please go ahead.

Thanks. Good morning and nice quarter guys.

Thanks Dan.

First, a quick question on the industrial segment. Obviously I’m catching the video sync -- the video sync or seeing the fact that you put up a really, really strong margin in the fourth quarter and pretty constraint view on next year. Can you maybe just walk us through, is this kind of the completion of something or are you near the end maybe the fertilizer project is something really strong just kind of leading to that pretty material delta between Q4 and ’16?

Yes, I’ll give you the big picture view for me, this is the quarter was -- we were starting to see in the quarter some roughness from the iron and steel business, that was starting to turndown pretty dramatically. So that, I think that even highlights better the performance of the mining and minerals business as well as the fertilizer business. So, I think it’s a combination story, so you have a steel business that’s starting to fall off. We had a fertilizer business where several of the projects that we had in place with Orascom and we were starting to close those out, and we’re able to bring some contingencies to the bottom line, and our mineral mining and minerals business but our markets getting tougher continue to perform really, really well. So I think for me it’s a little bit of a mix story there, but it’s just -- it’s just an overall great performance in the quarter.

Sounds that way. Real quick on the power gen side, obviously you’re just ramping on Napanee, but give that, that’s a project in Canada, its obviously using local labor. What's your real constrain in terms of pursuing the next power job in the U.S? Is it a project management issue as you’re waiting for Napanee to move forward or are you kind of ready now, its just a question of when something moves into contract phase?

So I would say it’s a probably a combination of all the above. The projects that we think that we have the opportunity to be the most successful on, their timing to make sure that we’ve got comfortable with the depth and bench strength of the resources that we have. We want to get a little further down the road on the Napanee project, conservative nature of our leadership team to make sure that we are comparable with the ability to add another one in the backlog next to that. I mean. it takes -- when you get something that you’re really interested in, in a power job, it takes 12 months from the point that you’re really going to work your way into an RFQ process, because by the time you get through all the contract Ts and C negotiations that you’ve actually going to be able to put something in the backlog. So there’s a lot of time involved putting that together, and that timing for us is okay.

Fair enough. And then lastly I want to close that on storage solutions, you kind of mentioned pipeline activity as I guess, is a corollary to tank work and terminal work. And clearly that’s the case on the good access, and I think Sandpiper which is already in your backlog. But at least for us, most of the pipeline work that we’re tracking going forward is more in the natural gas side. Are you looking -- are there tankage opportunities there or are you seeing a pretty strong level of oil pipeline opportunities as you look out that are going to support the tank internal work you’re talking about?

So I think we’ve seen both and just so people don’t forget, I mean we have capabilities on the gas pipeline side associated with the spheres, with pressure stations, with gas processing and that’s an area for us as a company, but we think there is a lot of growth. We probably have not done as good a job marketing our capabilities in that piece of the business but there is -- those opportunities are continuing to exist out there. We see the demand for gas and gas related products continuing to be strong and to be strong out in the future. So that’s an opportunity, the whole gas value chain for us from the power point out to the chemical facilities and the fertilizers and up stream is a opportunity for growth for our business.

But you do see a strong outlook in terms of oil pipelines as well or is it, are you seeing kind of a shift in, you just happen to have maybe more capabilities on the gas side than we’ve given you credit for?

No I think we’re, not getting real specific, I mean I think we’re seeing opportunities on both sides, both in liquids and gas.

Great. Thank you very much.

Thank you.

Thank you. [Operator Instructions] Our next question is a follow-up from the line of Tahira Afzal of KeyBanc. Your line is open. Please go ahead.

Hi. Thank you very much. So I had a couple of follow-ups for you folks. Number one, when you’ve talked about some competitive pressures on the storage side et cetera, clearly those are to be seen. What about the power side John, the activity there we’re entering a cycle which is positive. I know for some of the large contracts out there there’s competition from general contractors. But are you seeing in your sweet spot some improvement?

I don’t think that we’re seeing anything -- anything has changed in the last 12 months related to the competition in that part of the business. I think it’s according to competition especially in a union environment. Our power and construction capabilities reside on the building trade side of our business that creates more challenges for a lot of the competition out there. We don’t have as strong as a presence and a relationship with the building trades that we do in many parts of the country, and that creates a bit of a bigger differentiator for us in that market and helps to minimize some of the competition and also puts into position to team up with some of the larger EPC firms that don’t necessarily have a union delivery solution. So, I think if anything -- I think we’ve got some very differentiated services because of our geography and our union relationships.

Got it. And second question is, I know you folks have been doing sort of an introduction that starts with a safety message and to put it in perspective for lot of investors, I know you’ve talked about having lot a colleague, but perhaps you can talk a bit about how important safety is even when you go out and compete and how that scores fit your customers?

Yes, so I think that’s -- and I really, really appreciate that question Tahira. So I think it gets lost sometimes in the message, and we talk about safety with you folks and in everything that we do, because it’s not only part of our culture and our value systems, but it’s also a huge differentiator with the number of our clients that we deal with. So that’s the big either refinery clients, the power clients, our industrial clients. Safety is high core value for them. They want their vendors to perform, and I guess exceptionally high level, they have, they set that expectation. I would tell you that when we had the heavy unfortunate fatality this year that we had at least a dozen of our clients who wanted to meet with us and wanted to meet with our executive teams and talk about that issue. They wanted to understand what happened, how we’re dealing with it and it was more in a positive framework, but its -- if there was something that we’re able to provide the -- and characterize the incident and talk about the protocols that we were changing as the business to deal with that specific issues around that incident. It could have been a different situation. You could have clients that would take us off their bid list or would put us in sort of a penalty box where all things being equal our safety performance may not lead them to want to contract with us. So I guess it’s very important for us that we send a message to you guys and to our own employees who listen to these calls, our potential future employees that our number one core value in this value is, our employees go home safely. And that is -- that culture drives performance, and that’s why we talk about it all the time.

Okay. Thanks a lot, John.

Thank you. And I’m showing no further questions in queue. I would like to turn the conference back over to management for any closing remarks.

So, thanks everybody who joined us today, and we appreciate your support and we look forward to talking to you in the -- at the end of the next quarter. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may all disconnect. Have a great rest of your day.