Matrix Service Company (MTRX) Q1 2016 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. And welcome to the Matrix Service Company Conference Call to discuss the results for the First Quarter ended September30th. At this time, all participants are in a listen only mode. Later, we will conduct the question-and-answer session, and instructions will follow at that time. [Operator Instructions] I would like to introduce your host for today's conference call, Mr. Kevin Cavanah, Vice President and CFO. You may begin.

Thank you. I would now like to now 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, 2015, 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, SEC filings and on the company's website. I will now turn the call over to John.

Thank you, Kevin. Good morning, everyone. Kevin will walk you through the numbers in a minute and I will follow-up with some commentary on our end markets, but I want to start the call today talking about safety. Our total global incident rate or TRIR was 0.79 for the first quarter of fiscal 2016. We ended our last earnings call with a question about safety and why it is such a core topic at Matrix. Of the six core values in Matrix, our number one focus has and always be our commitment to safety. We make safety a critical element of how we conduct ourselves throughout the day both at work and at home, in the field and in corporate and regional offices. As part of our culture and is also a major differentiator with our clients. Safety is a core value for them too and they expect their vendors to perform at an exceptionally high level. So this morning in our future calls rather than present a safety -- specific safety moment, I thought it would be beneficial for us to spend some time talking about why safety is so important, why it’s a differentiator and what we're doing to achieve zero incidents. Today I would like to talk about the lagging indicators that industry uses to measure safety. By lagging indicator, I mean, a measure that identify safety performance after an incident has happened. You may hear some contractors’ report safety rating, LTIR, which stands for the lost time incident rate. LTIR attracts injuries severe enough to keep employee from returning to his or her work. One of the key safety performance measures Matrix uses to total recordable incident rate or TRIR. To those who may not be familiar with these terms, the acronyms used LTIR and TRIR sound alike, but the fact is that lost time incident rate is just one part of the total recordable calculation and so it report only lost time incidents tells only part of the story. Total recordable incident rate measures every incident regardless of severity. Let me define it for you. There are four types recordable incidents that together with the other three makeup TRIR. A medical only recordable which is an injury that requires treatment and must be delivered by a medical professional, whether individual can return to his or her normal duties following treatment. Two, a restricted workday recordable is an injury that requires treatment by a medical professional and while the individual can return to work he or she is restricted from performing his or her normal duties following treatment. Three a lost time incident recordable is an injury that requires treatment by a medical professional and the injury is severe enough, so not to allow the individual to return to his or her next scheduled shift. And finally is a fatality. In theory, our work site that could have zero lost time incidents, but have multiple other recordables and even a fatality none of which -- none of which will impact our LTIR. Lost time alone does not provide an accurate representation of safety performance. Only a total recordable incident rate provides a true and complete measure of the contractors’ commitment to safety. The higher our company’s total equivalent incident rate the more likely you are to have serious safety incident. That’s why Matrix focuses on TRIR and that’s why we are committed to achieving zero incidents. It’s that commitment with the safety our customers expect and that why it’s a differentiator. Our goal is to just -- is to not just prevent lost time incident is to achieve zero incidents period. With that, I would like to turn the call over to Kevin to discuss the first quarter financial results.

Thank you, John. Our first quarter results provide us with a good start to fiscal 2016. Revenue was $319 million and resulted from increases in the Electrical Infrastructure, Storage Solutions and Oil Gas and Chemical segments, offset by an expected reduction in the Industrial segment. Solid project execution resulted in gross margins increasing from 8.8% in the first quarter last year to 10.8% this quarter. SG&A declined from $19.8 million to $19.5 million, which represented a 6.1% of revenue. As a result, operating margins improved to 4.7% for the quarter, compared to 2.7% in the same quarter last year. The quarterly effective tax rate was 34%, which is lower than our expected tax rate of 37% due to the one -- due to a one-time foreign tax item. Bottomline, we produced $0.37 of EPS for the quarter, up from $0.22 in the same quarter last year. We ended the quarter with $1.28 million of backlog, down from $1.42 billion at June 30, 2015. The makeup of our backlog has changed and with the additional of larger construction projects, and based on the timing of these project awards, it is important to view backlog over a period of time rather than looking at sequential quarter-to-quarter trends. Backlog of $1.28 billion at September 30, 2015 represents a 30% increase over the past 12 months. Moving on to our segments, quarterly revenues for Storage Solutions segment were up year-over-year to $144 million as compared -- as we continue to execute on larger balance of plant opportunities along with our traditional storage business. Gross margins in our Storage segment were 14% as a result of strong project execution and over recovery of construction overhead cost. Accordingly, margins exceeded the high end of fiscal 2016 expectations of 11% to 13%. Backlog of $594 million is at 10% from the same quarter last fiscal year. In our Electrical Infrastructure segment revenue of $66 million was 18% higher than the same period last year as a result of volume increases in both power generation and power delivery. Gross margins of 7.2% for the -- were tempered by recognition of revenue on work performed at zero margin on the acquired joint venture power project discussed on previous calls, as well as under recovery of construction overhead costs as result of lower volume of work during the summer months. As we move through the back half of the year, we expect our margins in this segment to improve and return to 11% to 13% range. Backlog was up 211% to $467 million at quarter end, as compared to $150 million go. Revenue of $68 million for the Oil Gas and Chemical segment was up 28% over the same period last year, but below our expectations for the quarter. The increases were largely due to small construction work on a gas processing facility. That said we expect moderate turnaround activity for the balance of the year with the fourth quarter being the strongest. Good margins for the quarter -- our gross margins for quarter were 8.3% as a result of under recovery of construction overhead cost during the slow summer months. We expect the gross margins will improve and return to our expected range of 10% to 12% as we move through the rest of the year. Results for the Industrial segment were mixed. Revenue of $41 million is down from $79 million in the same period last year as a result of slowdown in work in the iron and steel industry. The mix of work in this industrial segment combined with strong project execution produced gross margins of 9.6% for the quarter which exceeded the range discussed on our last call. Backlog of $95 million at quarter end is down from $151 million in the same quarter last fiscal year primarily due to the slow down in iron and steel industry and the run off of work related to the fertilizer project we have discussed on previous calls. I'll close the call -- I’ll close my comments talking about liquidity and guidance. As of September 30, 2015, our liquidity stood at $194 million, including $69 million of cash. That -- this represents a 20% or $20 million increase or 11.2% over the last quarter. The constraint on our line of credit continues to improve. And we expect it to be eliminated over the next two quarters. With that noted, our liquidity of $194 million is sufficient to achieve our business objectives. Regarding guidance, we are maintaining our fiscal 2016 guidance of revenue between $1.4 billion and $1.6 billion and earnings per share from a $1.45 to $1.75. The combination of the expected ramp-up in the Electrical Infrastructure segment throughout the year, the commencement of field work on Energy Transfer’s Dakota Access project in early calendar 2016 and the current turnaround calendar will result in the back half of the year being stronger than the first half. Therefore we expect the second quarter to be similar to the quarter we just completed. With that, I’ll turn the call back to John.

Thank you, Kevin. Discussing our segments more specifically, Storage Solutions continue to see a steady flow of bid opportunities in attracting and increasing number of potential projects currently over $5.5 billion. These projects are expected to be awarded over the next 18 months. They include crude tanks, specialty vessels such as O&G and gas liquids, related balance of plant work and maintenance repair on existing storage assets. Additionally, we are seeing more opportunities for storage terminals related to the expansion of existing chemical facilities as well as construction of Greenfield projects. We're working closely with several customers on planning their major terminal projects in most cases, offering an EPC solution for the tankage and balance of plant work. We're also working on several LNG opportunities where some of these projects are large-scale LNG export facilities, other small to midsize LNG projects continue to be announced. We believe we’re the front-runner for the tank and cryogenic work associated with many of these projects, both large and small. Regarding ongoing projects, work related to Energy Transfer’s Dakota Access pipeline, is moving forward. This project is for the EPC in all six crude oil terminals and as part of one of the largest pipeline systems in the Bakken. Our engineering group is working closely with the customer on final design elements. Additionally, our mobilization team has been on the ground in Williston North Dakota setting up our project management office ahead of the field constructions start in early calendar 2016. Moving on to Electrical Infrastructure in our power generation business, construction on the Napanee Generating Station is also on plan. Site preparation work is complete and major foundations are in progress and a significant amount of the fabrication and engineering materials are arriving at the site. As we progress on Napanee, we’re also pursuing approximate 4.4 billion of other power generation 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 summer peak. With that said, our bid flow continues to suggest a robust environment ahead for substation and distribution work, supportive of our expectations in this area for fiscal 2016. We are also actively pursuing acquisition opportunities in the space to add geographic diversity to our footprint and allow us to bring our expertise into new markets. In the Oil, Gas and Chemical segment, the market for turnaround services appears uncertain for fiscal 2016 and 2017 because fully integrated oil companies are reducing spending where possible to offset reduced cash flow from their production businesses. Non-integrated refiners continue to enjoy increased margins and where possible, are postponing turnaround work to maintain high utilization. As a result, we still expect our moderate turnaround season for Matrix with the potential for incremental scope growth caused by deferred maintenance due to high refinery utilization rates over the past year. Moving on, we discussed on our last call the challenges we expect in the Industrial segment for fiscal 2016, particularly as it relates to our steel and mining and minerals businesses. As Kevin noted earlier, margins for the segment top the high-end of our expectations attributed to solid private execution. Our steel customers continue to suffer from strong dollar position and aggressive supply from China. Our mining and minerals customers are also reevaluating capital spending in mine maintenance plans in the face of slowing global demand. As I shared in our last call, we expect our mining and minerals customers to look internationally for most of the CapEx cuts chosen to focus on the most efficient and cost-effective production facilities in North America and prioritize any CapEx plans. Until market conditions improve in mining, metals and minerals, we expect performance in this segment to be on the lower end of margin guidance previously provided. On a positive note, we continue to actively track several fertilizer projects in the U.S. and believe we're well-positioned to a win new project work in this space. Following up on Kevin's earlier comments related to the backlog, I want to reiterate the importance we look at the overall trend and not quarter-over-quarter movement. Given our track record of quality work performed in a safe and efficient manner, we’ve developed an excellent reputation as premiere engineering and construction company. Indicative of our growth and ongoing development as a top tier contractor and as I mentioned earlier, we have an excess of $10 billion in opportunities on our bid funnel including large projects that can result in significant increase in the backlog over the next 18 months. We are very selective about which of these projects we take on and when it is both critical, strategic and risk management decision process. And as such, this measured approach may cause fluctuations in backlog as large projects are warrant and executed. When we had visited with you previously, we advise you look at our backlog trends on a yearly basis. Keep in mind that nearly 50% of our annual revenue comes from recurring maintenance in small capital project opportunities and over 75% of our total revenue comes from repeat clients. This diversity in our project portfolio of maintenance large and small-cap projects pre-rates the underlying strength of our operations, all of these elements are critical to our success. So we continue to execute on our strategy, diversify our business, strengthen our balance sheet and make significant investments internally to take our people, processes and systems to the next level. As I close, I want to thank our employees in all segments of our business for a great job they have done in the quarter. So stay tuned as we have an exciting road ahead of us. Now I would like to open the call for questions.

[Operator Instructions] Our first question comes from John Franzreb with Sidoti & Company.

Good morning, guys.

Good morning.

It seems like you’re trying to convey that we should look past the sequential weakness in the backlog and that the opportunity pipeline still suggests you finish 2016 with a solid backlog at year end. Could you just walk us through some of the puts and takes, especially given some of the meaningful drop we’re seeing in the industrial segment-wise confident?

Well, I think the fact we gave you some of the headline numbers of the potential opportunities in the backlog that we think that the strength of the -- strength of those opportunities, the likelihood of those projects moving forward is going to create a lot of backlog upside potential for us, intellectual infrastructure and storage solutions minimally that any potential downside in the industrial would be overtaken by the upside potential from the backlog perspective in those other two segments.

The other thing to appreciate is that -- so the headline numbers we’re giving you on the backlog opportunities isn't everything that we’re looking at. So those are the projects that we’re focused on that we’re working on relationships with our clients that we maybe in a bidding or have already proposed stage. So that is in a list of projects that may include to have a 10 chance of going forward, that’s a list of projects that we think we have a good opportunity of winning or can be successful at and that our clients are going to actually put in the ground.

Fine. Great. It also sounds like you’re less optimistic about the refinery turnaround season in this coming spring than you were a quarter ago. Am I misreading that, or is that the case?

I think we’re just -- we’re confident about position in refinery space. We think that we’re going to have a good turnaround season. We think there is some upside potential due to the deferral of maintenance because of crack spreads. So we’re just hesitant on how refiners may react here over the next three quarters of what we expect to be the plant turnarounds versus what they may actually do. If you remember last year between the strikes and weather issues and again good cracks spreads, there was a lot of movement with refinery timing. And so we're just being -- I think is being a little cautious pragmatic on the timing of the refinery starts and the size of the turnarounds.

Okay. And one last question, in the oil, gas and chemical, the first quarter margin -- the gross margin of 8% below you target, you kind of called out absorption as part of the issue. Last quarter you mentioned there was some pricing also going on there. I guess two parts, how much of the quarterly results impacted by pricing? And can you just talk about how you would expect the cadence of that gross margin to progress as the year goes forward?

So I don’t think pricing is really playing into the margin significantly. I think it’s primarily the volume of work in that segment. When we get up to where we’re having a strong turnaround quarter, you’re going to see those margins recover. So as we go through the year, especially when we get to the fourth quarter, I think you will see those margins return to what we normally expect.

Okay. Perfect. Thank you for taking the questions.

Our next question comes from Matt Duncan with Stephens, Inc.

Hi, guys. We’ve talked about some of the bad stuff, let’s talk about some of the good stuff now.

I didn’t now we talk about any bad stuff.

The storage solutions business seems to be really, really well. I mean, you’re clearly executing well to get to a 14% gross margin. Is there the potential that you can keep that up, or would that be unreasonable to assume?

So I think there is opportunities in quarters for that to happen depending on close outs, timing of close out of projects, any projects we might have, incentives related to that. So I think what you're seeing there is a kind of hitting out of the park kind of number, but I think right now we are pretty confident and the guidance range that we’ve given you guys for the margins in that segment for us to be bouncing on the top end of that range. We talked about storage and we believe we’re the leading contractor in North America and we definitely have a resume for it. I think this quarter our operations did a great job of executing across the board. We didn't have any problem projects that would have deteriorated in otherwise good quarter and that. So the combination of the entire business produced is very strong operating margin.

Okay. Fair enough. So John on just sort of the cadence of the backlog here, I mean you’re clearly working off two large wins, the Napanee and the Dakota Access terminal work, but I would think that those two segments where those wins are probably your strongest end markets at this point. So understanding that this is going to come in fits and starts. If I'm hearing you correctly, should we still expect backlog growth over time in those two segments?

Yes, that would be our -- we would expect backlog growth opportunity in those two segments to be the highest.

Okay. Do you need additional large wins in either of those segments to get to the revenue guidance for the year? Can you get there on sort of what you’ve got and sort of more typical smaller size wins?

We probably need the smaller wins than we do bigger wins to get into the guidance range for this year, obviously another large, so you got to look at the perspective of the timing of that. We are bidding work, the larger projects take longer time to propose and negotiate and win. The potential impact in the year from where we’re at today is going to be smaller just because of the timing of getting something that in. So it’s going to be almost, so it’s going to be a little more about building backlog than it is about having a major material impact on the year. That’s not to say that we have some near-term opportunities that they provide some small amount of revenue in the back half of this year. And we certainly hope that we’re successful on winning some of those near-term opportunities.

And that's not consistent with what it usually is. When we go into a year, we are 60% booked, we are feeling pretty good. The fact that we say we’ve got to win some smaller projects that's normal.

Yeah. I assumed as much. I just to want to make sure we weren’t counting on really big wins to kind of get us there. And then last thing, Kevin, the comment about 2Q verse 1Q. Is that both from a samples and profitability perspective that you would expect them to be fairly similar, or should we expect the sales to step up a little bit, which keeps the profitability the same?

So, I guess this is what I will say. We don’t give quarterly guidance. But we felt like it was important this time to talk about the trend of revenues and earnings for the year because if you look at Dakota Access, you look at the Napanee project and you look at the turn around calendar, it leads us out to the back part of the year being very strong. The second quarter’s, is going to be a good quarter but it’s not going to -- we are not going to knock it out of the park based upon the backlog we have right now.

So revenue probably does grow sequentially, just we need to assume that it’s the big revenue quarters were in the back half.

Yeah. I mean, normally, the first quarter, this summer quarter is usually our lightest quarter from a revenue perspective because of the summer months impacting, turnaround activity and impacting the power delivery side of the electrical segments so. There should be some growth but it’s not going to be -- we are not going to go out to the amount, we are going to hit in the fourth quarter.

Understood. All right. Thanks guys.

Thank you.

Our next question comes from Tahira Afzal with KeyBanc. : Hi. Morning. This is [Sunil] [ph] on for Tahira today.

Good. Thank you.

Good morning. : I have couple of questions. First one, if you could please provide an update on your LNG opportunities given the changing macro environment?

So, we have -- it’s pretty while I haven’t talked about the individual projects that we are involved with, some of them maybe on an exclusive basis. And we consider that sort of a competitive thing but there is specifically, couple of projects in the Gulf Coast area and a couple of projects in other areas of the country that we are in some stage of proposing and bidding. And we try to stay focus on the ones that we think have got the best economics for the client, the ones that have a -- their best position to get their permits approved from both a timing perspective and likelihood of it going forward. And so we could bid on a whole lot of them. But again, we stay pretty focused on the ones that we think that has the most likelihood of happening and the ones that we have the best opportunity to be successful. : Okay. Got that. That’s helpful. And second question. Some of your earlier midstream companies such as Plains have become more cautious on the midstream CapEx. So, I was just wondering how relevant is that for your outlook?

So, probably the best way for me to answer that is yesterday, one of our key clients, Enbridge announced that they are going to spend $5 billion in midstream asset upgrades on the Gulf Coast. So, I would say we wouldn’t agree with the statement that our midstream clients are being conservative or backing down on their CapEx spend. It's really more of a permitting issue and timing then they're not continuing to put infrastructure in place. : All right. Got that. Since we touched upon Enbridge and considering they are one of our key customer with 10%, plus topline contribution. Can you provide us more color on the same like the announcement and what are your expectations around it?

Well, I think we have to get with them, find out what role and opportunity we have to play in that, those projects. What’s the timing of rollout of those projects is going to be? There are going to be spread along the Gulf Coast from Texas into Louisiana. And so, we certainly would have the expectation and minimally from a tank perspective that we would play an important role in that capital spending. And in addition to that, we do besides tank work for Enbridge, we do balanced plant work and terminal work. And it would be our expectation that we would have an opportunity to provide services along those lines as well. : That’s helpful. Thanks for taking my questions. I will jump back in the queue.

Thank you.

Our next question comes from Robert Connors of Stifel.

Hey guys. I actually -- you guys beat me to the punch little bit just regarding the Enbridge announcement. I was just wondering if you could remind us about the partnership agreement. Is there any differences in partnership based on geographies, whether it would be like you're doing work for them in Canada, versus you are doing work for them in U.S., in the Gulf Coast because I know that can be applicable for further season?

Nothing materially.

I don't think we are going to get specifics about contracts with our customers.

Okay. Yeah, I guess I was just asking more around the partnership arrangement. But I guess over year ago, you begin the restructuring effort to streamline the operations with the goal of getting that SG&A level down to about 5.5% of revenues. You improved that SG&A line year-over-year. So looks like it's going the right way. And can you remind us on just your targets and where you're at in that entire restructuring program?

I will kind of give you a response to that side. I think restructuring might be a little strong. That implies that something was broken.

Okay.

I would say we’re more focused on making sure as we grow the business, there will be improvement with how we spend our overhead dollars. I will let Kevin comment on the numbers.

Yeah. So, if you look at last year, we had a good trend, especially in the fourth quarter, we got our SG&A percentage down. With this first quarter, it’s a little bit higher as a percentage of revenue but the dollars are definitely down. So, we will look and try to get that SG&A to 5.5% probably. And if we can truly leverage it more, I don’t think it long-term but it will be below 5%. But definitely likely get a consistent level of 5.5%.

Okay. Thanks for taking my question.

Sure.

Our next question comes from Martin Malloy with Johnson Rice.

Good morning. Congratulations on the quarter.

Good morning, Martin.

Good morning. On the Industrial segment, just curious if you see the run rate and the first quarter’s kind of being indicative of the bottom of the cycle here and shouldn't go much lower? And then maybe also talk it’s -- I’m surprised by how well your margins have held up here in this segment, you expecting to hold up. Maybe talk about how you achieving that?

Yeah. So we did around $41 million of revenue in the quarter for Industrial, and I think, that’s a -- it’s kind of a for -- at least for the next couple of quarters. Most of that decline as we mentioned was in iron and steel. And a lot of that is our -- that’s our lower margin work. The work we’re doing in the fertilizers, good to margin work. And so kind of weighing of the revenues that are in there has allowed us to produce a gross margin that’s above our expectation that we gave you guy’s last call. So that we just saw a decent margins here at this next quarter as the fertilizer project continues. But as we get into the last part of the year unless something changes, we won another fertilizer project. We can keep the margins up there, but if we don't, we don't see a recovery in iron and steel then you’re going to see those margins go down to what we've talked about previously.

Okay. And I think last couple of quarters on the call you talked about doing some early feed work for some customers on proposed fertilizer plants. Can you talk about maybe the likelihood for those projects going forward, the timing of those projects, how you see them rolling out?

As we have -- I think we have about five projects that we are actively engaged in some stage of the daily process that we -- I think there is one that actually have a bid in place. We have been having disciplinary discussions about that. So, I mean, I think, our expectations and our hopes would be that sometime in this -- within this fiscal year we’re going to add at least one of those project opportunities into your backlog. So they’re still out there. They’ve been moving around a little bit based on permitting and some other things. But the ones that we are tracking appeared that they are moving ahead.

And the scope of work that you do with these would have be roughly similar to the Orascom project, is that what are you looking to do?

Yeah. It would be roughly similar to those projects. It would probably start in -- with the storage award and then move into other elements of the storage footprints. Well, there some balance of plant work, some refrigeration send out truck unloading, those types of elements. The other thing I would say is that as our work has progressed at Orascom, as we first started down that path, we told you guys that it started as a storage award and we were fairly confident that we would be able to pickup other elements of the work. And that frankly is continuing, it has continued. And so there are other pieces of the plant as they moved at the completion that we've been picking up some small team, reimbursable awards on that project as well. And we will certainly hope that that would continue to the course of the year.

Great. Thank you.

Thank you.

[Operator Instructions] Our next question comes from John Rogers with D.A. Davidson.

Good morning.

Good morning

Good morning.

First question is just in terms of the large projects that could access in Napanee Generating Station. John, you mentioned that you’re essentially preparing to ramp up construction activity into the second half? And I’m just curious about and I know you don’t want to talk about specific projects. But the margin recognition profile of these projects, are there substantial or significant hold backs initially in the projects and potential for margin ramp through there and is that decidedly different than the margins you’re seeing right now?

Well, I mean, for both those projects were -- which are under our lump sum contracting structure, the opportunity for us to improve the SBA margins is really a performance issue, whether that's both hidden the budget or minimizing costs against the budget or doing better on our schedules. So the opportunity to raise the margins there will be on performance and generally for us that’s going to be in the backend of those jobs, where we’re falling off a long then we could recognize that there were, save the money against our budgets. Then we continue to see elements that we have included in those projects or able to drop the bottomline. While we, in general, don't make those kind of decisions and so we’re at the backend of that specifically on those projects.

Okay. And as you ramp up activity and I assume revenue on these projects in the -- I guess towards back half of this fiscal year, is it dilutive to your margins?

No. It’s not.

Initially I just want to ….

No. It’s not. When we start our project, we've gotten an anticipated like most likely outcome. And we’re not being -- we’re not recognizing those things at a real low margin just to hold back.

Okay.

We’ll have a good estimate on the project like John said and hopefully we can outperform.

Okay. I just -- thank you. I just wanted to see how those would flow into the future.

That expectation is -- outcome of the total job is 8%. And so from the very first dollar, we recognized on the project, we will recognize 8% of margin. And so from the first dollar to the last dollar and as we get to the backend of the job, as we said before, as we performing against our budget, as we think that the continuous delevers that are included in those projects are more than adequate to cover the risk to get to the end and we may start moving some of those, some of that continuously to the bottom line.

And we’re continually reforecasting those jobs as the execution is going. And so we're continually reevaluating where that job stands, what’s the most likely outcome. And so it’s something that's kind of a dynamic process if we go through the job.

Right.

And to ramp up on those projects, [St. Anthony] [ph] for instance has been mostly dirt work and concrete work, has been a fairly minimal amount of trades with some subcontractors. We’ve been procuring materials. So our expectation for that to ramp up in the back half of this year is we’re going to be starting to put multi-trade disciplines on the job side, which are direct in steel, physical interaction, starting to put in place some of the center line equipment. So all those things will bring more tradesman and more cost on to the job side which is going to continue to drive up our revenues.

Okay. And was there a significant backlog impact from the weaker Canadian dollar in the quarter?

It has some impact on it but it wasn’t significant. There is more. The decline in backlog is just for the timing awards.

Okay. And then lastly, John you mentioned the BP or that Enbridge news on the spending plans. Have you started to talk to customers about oil export terminal or storage facility?

So I’d say identically there are several of our key clients that I think their perception is that’s going to happen. And I think the Enbridge announcement yesterday which was they are pretty open today. We are trying to get themselves prepared. They handled the potential outflow of crude oil in the global oil market. And I think its important thinking on their part. And so I know some of our other key midstream clients are having those same discussions internally. In general, they don’t think the infrastructure is in place along the Gulf Coast to handle a lifting of ban on the export of liquid gas. There is going to be a fair amount of infrastructure that’s going to have to put in place to deal with that surge in oil export.

Okay. Great. Thank you very much.

Welcome.

Our next question is a follow-up question from Tahira Afzal with KeyBanc. : Hi. This is [Sunil] [ph] again. Just a quick follow-up. On the power side, can you talk about any incremental opportunities and where are you in terms of capacity to take on more work here?

So on the general power generation? : Yeah, even substations and upgrades transmission.

Okay. So, we top power generation. That again as we said is a matter of timing and risk profile. So the projects that we’re interested in and the geographic locations we’re interested and the ones that we think we can be the most successful on. So, that timing of the award is important to us to put it in a right place as we roll off specific elements of the backlog, say, associated with Napanee as we move management teams around, as we have other people available. So, yes, we’re more trying to place the right job at the right time than just try to throw projects in the backlog, but we think there's a lot significant amount of opportunities out there that fit that profile for us. And so there is always the risk of the timing moving from between one quarter to another. And that certainly is something that we appreciate that could happen, so that's kind of the elements of how we are going to put a generating project into our backlog. On the distribution side, we’ve got a very, very strong market position in our core areas where we provide those services on the East Coast. And so we are getting more than our fair share of those opportunities, the opportunities are very strong. As we said in the opening remarks that we think that we are very confident that our expectations for this year in that piece of our business will be met based on what we’re seeing in the bid funnel and what we’re currently having in progress. And then on to that, we continue to see that there is a long-term opportunity overall in a high-voltage work throughout the U.S. both for substations, which -- it is important to remember that today we’re principally substation repair, maintenance, and newbuild contractor. While we do transmission, distribution that's a smaller percentage of our overall electrical infrastructure on the delivery side. So we are working strategically both from an organic standpoint and from an M&A standpoint moving our brand into the Midwest and into portions of Eastern Canada where we continue to grow that business. : Thank you. That’s helpful.

Our next question is a follow-up question from Robert Connors with Stifel.

Hey, guys. I just want to follow up on just the cash flow. It’s been negative here for the past two quarters. And I would think that as you ramp up on these large projects in the back half and maybe a little bit more of cash drain working down some advance billings. So, I guess, what is your outlook on cash flow for the year, and if you can -- I mean, am I seeing this incorrectly or just what am I not seeing here?

So when we look at the cash, your assumptions are correct. Usually, when we’re doing these large projects, we’ll have in there advance payments to cover the startup costs. And we tried to keep positive cash, cash flow curve on those projects throughout the life of the projects. I think right now this last quarter our net working capital went up as a percentage of revenue. I think that’s more timing of when billings and collections occurred than anything else. When we analyze our balance sheet, we don't see a significant any deterioration in the quality of receivables or in the overall makeup of the rest of the current assets and liabilities. It’s more related to the timing of payments on AP and when the cash actually comes in on the startup of those projects.

It just sounds like I think backlog stuff that came in at the end of last year there's a little bit of difference when you receive the down payments?

One thing -- you remember on to is the Energy Transfer project was awarded in the spring, early summer. We were basically working through some contract terms and conditions for a while. Now we're in the engineering. So, the heavy spending on that project is only just now starting, and so that's -- I don’t want to get into a lot of details on our contract. But as it relates to the payments terms and those kind of conditions that they will follow the spending and so the spending patterns on that job only we just now starting to ramp up.

Okay. Great. Thanks for the clarity.

And I’m not showing any further question at this time. I’d like to turn the call back over to management for closing remarks.

Thanks everybody for participating in the call today. And we look forward to seeing you next quarter, please be safe in the time period.