Matrix Service Company (MTRX) Q4 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Matrix Service Company’s Sets Date to for the Fourth Quarter and Fiscal Year Ended June 30th Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] I would now like to introduce your host for today’s conference Mr. Kevin Cavanah, Chief Financial Officer. Please go ahead, sir.

Thank you. Before I begin, please let me remind you that on today's call the Company may make various remarks 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, 2016 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 website. Further please be advised the Matrix its directors and certain of the executive officers are participants in the solicitation of proxy from the Company shareholders in connection with the upcoming 2017 Annual Meeting of Shareholders. As we disclosed in our preliminary proxy statement filed yesterday, Engine Capital, L.P. has notified Matrix of it intends to nominate two director candidates for election to the Board at the 2017 Annual Meeting. Shareholders are strongly encouraged to read the proxy statement, our company proxy card and all other documents filed with the SEC carefully and in their entirety as they contained important information, information regarding the identity of accompanying participants and their direct and indirect interests by security holdings or otherwise is set forth in the proxy statements and other materials filed by the Company with the SEC. These materials can be found for free to the Company's website in the section Investor Relations or through the SEC website. We will not comment further on the director nomination notice of Engine Capital on this call. I will now turn the call over to John Hewitt, President and CEO of Matrix Service Company.

Thank you, Kevin, good morning everyone and thank you for joining us. We have a lot of business results and strategic information to cover this morning, so I want to apologize to you ahead of time to today's prepared remarks will be slightly longer than normal. First, I would like to extend our heartfelt thoughts and prayers to all those impacted by Hurricane Harvey and as of those in the path of Irma after heed those warnings. The catastrophic damage infected by Harvey along the Gulf will be felt for some time to come and the people affected by it including our own employees and customers will all need our help and support. As they began the path to recovery, it is also heartwarming to experience the resiliency of the human spirit and to see our people from across the country have come together to help so many in need. That's all joined together to do what we can. On a positive note, I want to congratulate our team at the Matrix Service fabrication facility at the Port of Catoosa outside of Tulsa for achieving OSHA's Voluntary Protection Program or VPP star designation. This designation which is the highest designation given by OSHA is reserved for employers and for employees who demonstrate exemplary achievement in the prevention and control of Occupational safety and healthy, and health hazards. Finally, I would like to take a moment to also congratulate all of our employees for achieving a consolidated total recordable incident rate of 0.49 in fiscal 2017. This is a record for our company and represents [audio gap] for our diverse portfolio of businesses. Thanks to all of our employees for putting our core value of safety first. It differentiates us from our competitors and in turn results in greater long-term value for everyone. Turning to our results, I want to discuss as it is the last quarter two key issues that had negative impact on our fiscal 2017 results. Related to the project in Electrical Infrastructure segment, we appreciate the concerns everyone had over this project. As we said on the last earnings call, we were confident in our ability to work through these issues in an equitable affordable fashion for both parties. Accordingly, I'm pleased to report that we have reached a resolution that has resolved all open claims and modified our contract terms so that all costs and overheads on the remainder of the work we performed will be recovered. As such, no additional project charges are anticipated. Our work on the project is expected to be substantially complete by the end of this calendar year. The greater impact to our financial results was the cumulative effect of continuing end market softness as a result of volatility and slowness in commodity price recovery, modest global GDP growth, and the complex and uncertain federal regulatory and legislative environment. Against this backdrop those we serve in the energy and industrial markets have deepen due diligence and extended the process for approval of capital projects and customers have spread maintenance expenditures over longer periods. These delays have resulted in a lower revenue volume for Matrix in this fiscal year. We do see our opportunity to generate direct gross profits and fully recover construction overhead cost. With that said, many large capital projects that we have been developing over the past year are forthcoming and in fact some are already in contract negotiations. Kevin will provide more detail during his comments but the impact of this lower revenue not the charge on the Electrical Infrastructure project is the primary reason for the Company's fiscal 2017 breakeven EPS. While we cannot control industry and macroeconomic headwinds that impact maintenance spending, project rewards and starts, we can control our cost structure. However, the speed at which we can make mid-course adjustments to align this structure to revenue will lag. Keep in mind that the challenges to manage our construction overhead cost in a way that ensures we have the resources necessary to develop, propose and execute on our contractual commitments as markets improve. We've taken numerous affirmative steps to right size portions on the business to reduce our cost structure that meets the forecasted project opportunity pipeline. On a consolidated basis and fiscal 2017, we adjusted our business plan for market softness and as a result reduce total overhead cost by over 10%. We're continuing to align our cost structure with anticipated business volume for fiscal 2018. Overall, project direct profit margin performance was strong throughout the business on the available revenue with the exception of the power generation project that negatively impacted margins in the Electrical Infrastructure segment. Direct profit margins in our Oil Gas & Chemical, Storage Solutions and Industrial segments were in line with or exceeded expectations. On a consolidated basis, the execution of our projects has been very strong. Additionally, our consolidated book to bill was solid at 0.90 and as noted in our earnings release project awards were up 34% for both the quarter and the full fiscal year when compared to fiscal 2016. This is indicated in our opinion of improving market dynamics which while we remain cautious is evident across all of our operating segments. It also stands as evidence to the value of our strategic objective to transition from tank contractor to full terminal delivery model across both flat bottom and specialty vessel storage. Examples of this include the Vopak expansion award in March of 2017 and the Southwest Gas award made in July. In Oil Gas & Chemical, our book to bill was very strong at 1.7 as capital construction projects, maintenance and repair work inside refineries and petrochemical processing facilities begin to trend up. This trend is further demonstrated by already booked fiscal 2018 turnaround work accounted for in this segment, which is 47% higher than that book and completed in fiscal 2017. Our groups will also see more requests for multiyear service agreements as refiners look to lock in needed labor resources. This segment is also being bolstered by additional projects awards and higher margin work resulting from our enhanced Matrix PDM Engineering group especially in the areas of gas processing and solve the recovering in handling. In our Industrial segment, our book to bill was also strong at 1.4, included in this work are two thermal vacuum chambers, a niche specialty area for Matrix as well as increased project work brought by our enhanced Matrix PDM Engineering. Current frontend development work on projects being executed by the subsidiary in the cement, agriculture and fertilizer markets as well as other material handling applications, all had EPC project opportunities connected to their completion. In the iron and steel market which is suffering from soft global demand and international dumping in North America, we saw improving volume and better absorption and construction overhead in the fourth quarter of fiscal 2017 which we also believe represents a turning point as capital spending begins to resume. As it relates to our mining and minerals services with the recent improvement in commodity prices, specifically as copper has reached over $3 per pound, we anticipate increased maintenance spending and capital project opportunities. Book to bill in Storage Solutions was low at 0.55; however, we expect this to improve dramatically in the near term. As we have discussed on prior calls, the supply of affordable North American energy combined with the growing global demand and fuel switching is driving the build out of North American pipelines for crude oil and natural gas. This in turn has created demand for significant infrastructure including storage terminals for pipeline logistics and energy exports as well as storage and storage terminals related to bunkering, fixating facilities and chemical product distribution. Part of our long-term strategy is to ensure we win a significant portion of this project work has been to broaden our capabilities to offer complete lifecycle solutions which was strengthened by the acquisition in fiscal '17 of Houston Interests. This acquisition brought among other things greater capacity and technical expertise in not only our core markets that has opened up other critical infrastructure markets to the Company. Additionally, Matrix PDM Engineering has expanded frontend design work further strengthens our ability to generate project opportunities and build strong and lasting client relationships. As of today, Matrix PDM Engineering is performing speed work on projects for crude oil, refined products LNG and other natural gas liquids that have an ultimate EPC value in excess of 1.6 billion. Let’s not forget that our industry leading position in flat bottom storage tanks and specialty vessels for both new-build as well as repair and maintenance are also seeing a strengthening in demand. And finally, in the Electrical Infrastructure segment, book to bill was 0.70. In power generation, we made the decision in early fiscal 2017 to not pursue projects as the EPC or general contractor on new-build gas fired generating facilities. This strategic shift has temporary impacted our book to bill in this segment. Considering this strategic shift, the remaining balance of the work in this segment which represented over half the segment’s revenue volume in fiscal 2017 had a book to bill of 1. This redirected strategy is underpinned by our market leading position in the Northeast. At the same time, the immense infrastructure needs that exists across all of North America for substation, transmission and distribution creates additional significant opportunity for Matrix through continued organic growth and strategic tuck-in acquisitions. In addition, significant project opportunities also exist for Matrix as a subcontractor for individual system packages on gas-fired power plant construction. I would like to make a few comments now about the impact of Hurricane Harvey to our operating segments. This storm has impacted many of our customers Gulf Coast energy, midstream and chemical infrastructure facilities. The extent of this impact is still undetermined however many of our customers were well prepared for its landfall. While the storm’s effect has been impactful to energy pricing, we do not believe this is a long-term event. For Matrix, our primary focus will be to support our customers' needs and our keep our employees safe. We've had some demand from our core clients provide industrial cleaning and maintenance and repair services as they work to get the facilities back online. In fact, we've already have teams from our industrial cleaning and turnaround plant services group that mobilized to provide assistance as requested by our customers along the gulf. While these services may create some incremental revenue for our company, currently booked and anticipated projects in Storage and Oil Gas & Chemical segments could be temporarily delayed as facilities are restarted and storm effects are mitigated. In addition, there could be some collateral impact at facilities outside the Gulf region, who choose to delay plant turnaround work in order to make a part of that capacity there has been temporary loss along the gulf. We view the overall impact of the business in the year to be positive, however, the storm may have the effect in moving some revenue in the later quarters. Now I'd like to talk more about our strategy for generating long-term shareholder value and returns. Looking back over the past five years, we've accomplished a lot. These accomplishments of the result in strong execution of our strategic plan which nearly double the Company's revenue while we conversely managed our balance sheet, we grew organically in the markets we serve. We transformed our industry-leading Storage Solutions brand from tanks to full terminals and extended our expertise from flat bottom tanks to specialty vessels. We expanded into new markets, added to our skill set and service offerings. We augmented our growth and geographic reach through multiple acquisitions and significantly enhanced our engineering and construction expertise. We've transformed the organization from primarily construction and maintenance to full EPC status and today, offer our clients complete lifecycle solutions. The strategic plan for the coming five years builds on this strong foundation. As we look forward, we believe our project pipeline and strategic objectives over the next five years will allow us to again double the size of our company and realized top tier Matrix to maximize the long-term shareholder value. This strategy can be categorized into these main focus areas safety, people and communications, clients and growth, and execution. Safety is first and for most, it is among the top reasons our field and perhaps people choose to work with Matrix and is also among the top reasons our customers choose Matrix. In fiscal 2017, we achieved a record TRIR safety performance of 0.49. However, our focus remains on achieving zero incidents. And we will do so by staying focused on safety leadership, training and development, and on the use tools and technology to achieve continuous improvements. Our clients have high expectations for the contractors to provide their capital and maintenance services. It is fundamental to our ability to bid and win work and therefore this strategic focus is critical to our future. Our ongoing growth and success is also dependent on attracting, developing and retaining high performing employees. We do so through strong leadership, succession planning and ongoing career development in an open and collaborative environment. Our culture, core values and performance management systems are all integrated to attract and retain top talent and achieve higher performance. In addition, we continue to deepen and broaden our communication both internally and externally through multiple channels to ensure our employees, customers and shareholders understand our culture and are kept current on our strategy and business performance. We will grow by continuing to build strong long-standing relationship to our customers and we will do so by staying true to our core values. We will also grow organically and through a series of strategic acquisitions, build a sustained international presence, take advantage of new market opportunities, leverage the strength of our enhanced engineering subsidiary across the enterprise and the application of technologies. And finally, we will continue to improve our organization effectiveness and efficiency and achieve consistent sustainable earnings by maintaining strong project performance, continuing our conserved approach to managing our balance sheet and focusing on achieving our key metrics. For long-term opportunities on end market are substantial and while fiscal 2017 has been both challenging and disappointing we remain confident in our strategy and the long-term opportunities within the market we serve and our ability to capitalize on those opportunities. I'll now turn the call over to Kevin Cavanah.

Thank you, John. As John discussed earlier, the fourth quarter and full year results I'm about to discuss with you were driven primarily by a revenue shortfall across our end markets. In addition to the loss direct margin opportunity, the revenue shortfall resulted in the under recovery of construction overhead and SG&A cost. During the year, we took definitive steps to minimize this under recovery through a thorough review of the entire cost structure that resulted in reductions in work force, consolidation of offices, minimization of capital expenditures and other cost reductions. Specifically on a consolidated basis, we adjusted our business plans which allowed us to reduce expenses by over 10% in fiscal 2017. These decisions were balanced against the need to maintain the infrastructure necessary to successfully bid, win and execute on revenue opportunities. We will continue to focus on cost control throughout our business and specifically in areas of our business experiencing lower revenue volume as we move through fiscal 2018. Now let's move on to discussing these specific results. Consolidated revenue for the quarter was $292 million, which compared to $360 million in the prior year, a decrease of approximately $68 million or 18.9%. The decrease in revenue on a year-over-year basis was primarily due to the revenue decline in Storage Solutions that was partially offset by higher revenue in the Oil Gas & Chemical segment. As John discussed earlier, from a project execution standpoint, our people turned in a strong quarter. On a consolidated basis, direct margin performance met or exceeded our targets. The Company reported gross profit of $23.1 million for the quarter compared to gross profit of $34.1 million in the prior year quarter. Consolidated gross margins were 7.9% and 9.5% for the same period respectively. The decline in gross profit and margins was primarily the results of under recovery of construction overhead cost in our Storage Solutions and Oil Gas & Chemical segments. Consolidated SG&A expense were $19.6 million in the fourth quarter of both fiscal 2017 and fiscal 2016. Fiscal 2017 included $3 million of recurring SG&A expense related to the ongoing operations of Houston Interests. These additional expenses were offset by overhead reductions that resulted from efforts to control our cost structure. As we indicated in our last call, tax rates for the fourth quarter were expected to be unusual because of the differential tax rates on the respective operating results in the U.S. and Canada as well as the overall limiting effect of normal earnings for the period on the deductibility of certain items. In the current quarter, the Company earned pretax income of $2.6 million as a result of the unusual tax rate of 137%. This pretax income was reduced to a loss of $1 million, resulting in a loss per share on a fully diluted basis of $0.4. For the same quarter a year ago, Matrix supported net income and fully diluted earnings per share of $9.1 million and $0.34 per share respectively. Now let me talk about the fourth quarter segment performance. In our Electrical Infrastructure segment, revenue of 100 million represented a slight increase versus the prior year due to higher volumes in the power generation projects. Electrical Infrastructure gross margins of 8% were down 10.5% achieved in the same period last fiscal year. The year-over-year decrease in margins was the result of the previously discussed large power generation project. As a result, gross margins were lower than our normal historical range of 11% to 13%. Revenue for the Oil Gas & Chemical segment increased 30% to 83 million in the quarter up from 64 million in the prior year period. The increase was driven by work on the Ultra-Low-Sulfur Gasoline Relocation Project for Monroe Energy and additional work provided by Matrix PDM Engineering partially offset by lower volume of turnaround work. Gross margins were 7.1% in the quarter versus 6.7% in the same period last year. Strong margins on capital work were offset by under recovery due to low volumes in our turnaround, repair and maintenance business. A return to our historical gross margin range of 10% to 12% is depended upon our return to a normal level of turnaround repair and maintenance work. Quarterly revenue for Storage Solutions was down to 79 million as compared to 165 million in the prior fiscal year. The decrease is primarily associated with the previously mentioned wind down of work on the gathering terminals for Dakota Access Pipeline combined with delays and anticipated awards in Storage Solutions. While strong project performance resulted in direct margins that exceeded our expectations, gross margins were 8.4% for the quarter, down from 11% a year ago due to under recovery of infrastructure overhead cost. Moving onto the Industrial segment, revenue for this segment declined by 13% on year-over-year basis to 28.9 million which compared to revenue of 33.4 million last year; however, gross margins were 8.7% compared to 4.8% for the same period in the prior year on this lower revenue. The current period saw improved margin performance due to a combination of previously implemented cost reductions and solid execution in our iron and steel business. Additionally, we saw a modest rebound in volumes from weaker levels earlier in the fiscal year. The market environment for this segment has remained difficult for the last couple of years, but we're beginning to see modest signs of recovery which is reflected in our strong book to bill and improving backlog. As a result of the anticipated recovery combined with the addition of higher margin work and expansion into new markets brought by Matrix PDM Engineering, we now expect segment gross margins to range between 7% and 10% as compared to our previous range of 5% to 8%. With regards to the 12 months results, revenue of 1.2 billion was down from 1.3 billion in fiscal 2016 in a difficult market, a decrease of 114 million or 8.7%. On a segment basis, revenue declined in the Storage Solutions, Industrial and Oil Gas & Chemical segments by 82 million, 48 million and 9 million respectively. This was partially offset by higher Electrical revenue which increased by 24 million. In Storage Solutions, the decrease was primarily due to the substantial completion of the Dakota Access Project and lower overall domestic storage volume. In Industrial, the lower revenue was primarily due to lower business volumes in iron and steel and mining markets which fall to collapse in commodity prices dating back to 2014 and 2015. In the Oil Gas & Chemical segment, the modest revenue decrease was due to lower turnout and maintenance in the refinery business as customers continue to be cautious in their spending partially offset by incremental revenue brought by Matrix PDM Engineering. In the Electrical segment, the increase in revenue was primarily the results of higher volumes on the significant power project. Gross margins of 6.8% for the year were down from 9.6% a year earlier largely due to the lower revenue volumes which led to the under recovery of construction overhead cost. In addition, the previously discussed large power project also had a negative impact to gross margins in the year. Consolidated SG&A expenses were $76.1 million in fiscal 2017 compared to $85.1 million in fiscal 2016. The current year includes $6.2 million of recurring SG&A expense, including $1.6 million of non-cash amortization that relates to the ongoing operations of Houston Interests. Current year SG&A expenses were also reduced by the Company's efforts to control its cost structure. Fiscal 2016 SG&A included higher incentive compensation expenses and a bad debt charge of $5.2 million from a client bankruptcy. For reasons discussed earlier, Matrix’s effective tax rate for the fiscal year was 94.4%. We expect the effective tax rate for fiscal 2018 to return to a more normal level of approximately 38%. Moving on to backlog, the June 30, 2017 backlog balance was reduced by $79.2 million to $682.3 million as a result of the scope adjustment related to the Electrical Infrastructure project settlement discussed earlier. This balance compares to $869 million at June 30, 2016 and $790 million at March 31, 2017. At the beginning of fiscal 2017, we indicated that we expected the downward trend in backlog to flatten out which have normalized for the backlog adjustment as a result of the project noted above is what we have experienced during the year. Project awards in the three months ended June 30, 2017, totaled $262.9 million compared to $195.8 million during the same period a year ago, an increase of 34.3%. Project awards totaled $1.061 billion for fiscal 2017 compared to $794 million in fiscal 2016, an increase of 33.6%. Having said that, it is important to reiterate John’s earlier comment about our book to bill which was solid at 0.9, an exceptionally strong in both Oil Gas & Chemical and Industrial segments while we remain cautious we believe that both book to bill and project awards stand as a strong indicator of improving market dynamics as well as the opportunities included in our project funnel. At June 30, 2017, the Company's cash balance was $44 million and borrowings under the senior revolving credit facility were $45 million. The cash balance along with availability under the senior credit facility gives the Company liquidity of $122 million at June 30, 2017. The Company is in full compliance with all covenants with our credit facility as of June 30, 2017. Availability under the facility is based upon a multiple of trailing 12 month EBITDA as defined in the facility agreement. As a result of lower earnings in the last half of fiscal 2017, availability under the facility is partially constrained. Despite this constraint, the Company maintains a strong balance sheet with the necessary liquidity to meet its fiscal 2018 business plans. However, in keeping with our conservative approach to liquidity management and based on the growth opportunities we see on the horizon, in August we executed an amendment to our credit facility. This amendment which temporarily modified certain covenant restrictions and increases projected available provides additional financial flexibility. This financial strength and liquidity continue to support execution of our strategic plans, funding the working capital, funding capital expenditures with the target at below 1.5% of annual revenue, pursuing strategic acquisitions and opportunistic share of repurchases. In fiscal 2018, we expect capital expenditures to be less than 0.75% of revenue, acquisitions likely limited to bolt-on businesses and opportunistic share repurchases which are limited to $5 million under the credit facility. Moving on to guidance for fiscal 2018, we expect full year revenue between $1.225 billion and $1.325 billion and earnings of $0.55 to $0.75 per fully diluted share. We are optimistic about the future considering the quality of our backlog, pending awards, strategic positioning and opportunity to pipeline. However, we are cautious given the market volatility we have experienced over the past year as well as the uncertainty around the timing of project awards and stars. As such, we've reflected this caution in our guidance. Additionally, the majority of earnings that underpin this guidance are expected to occur in the back half of the year. I will now open the call for questions.

Thank you. [Operator Instructions] Our first question is from the line of Tahira Afzal of KeyBanc Capital Markets. Your line is open.

I guess first question is, if I look at the fourth quarter and just multiply let's say by four. My revenues end up a little below your guidance range, but my profitability seems to be much higher than what your EPS guidance would suggest. Is that just your conservatism around utilization? Or is it something around the mix that I should be taking into account of maybe tax rate et cetera? Anything will be helpful there.

It's a number of things, Tahira. So, the tax rate is a big impact, but I think a bigger impact is more of the mix of work. And if you think about fiscal '17, we had two large capital projects ongoing. And the revenues associated from those projects for the Dakota Access were essentially done, so there is very little revenue that will come through in Fiscal '18. For the power generation project, the revenues will be little much lower next year and as a result of scope reduction. So that's being replaced by revenues in portions of our business where we've experienced under recovery of construction overhead cost. So I think that has an effect of improving the overall results that we'll report.

Got it, okay. And I guess the next question is, Kevin, you gave us -- you've always given that very helpful range in terms of segment margins. I guess you've given us an update on industrial margins maybe ticking up now versus that range is good to go. But it seems again as all three of the segments maybe you're assuming some level of under utilization, as you said largely on maybe lower cap close projects in the mix right now. If you look at the other three segments, any update on the segment margins there? And what should we look for -- is there a chance that the margins could end up hitting over in that range?

So I think that if you look at Storage, we continued to perform well and I'd say from a direct margin performance, the last half of the year the gross margin was lower because of the under recovery a dip in revenue volume. John mentioned the book to bill of 0.55, but we have also got some projects awards that we are anticipating that would help that segment. So I think our expected range long-term from Storage hasn’t changed, it's still under 11 to 13. Now with that said, I think the first part of the year, it will be below that because of the volume will be at the level that, that will allow for fully achieving that margin. If you look at Oil Gas & Chemical, we are anticipating improvement in the maintenance and repair and turnaround business that volume comes up we will start moving toward that 10% to 12%. I'm not saying that for full year we would achieve that, but I think we will start moving back at toward that level. The Electrical segment, we said 11 to 13 is our long-term range. Current mix, it might be a little lower and it will be lower this year as we complete the power generation project specifically during the first half of the year.

Our next question is from the line of John Franzreb of Sidoti. Your line is open.

I want to stick a little bit within the revenue theme here. First, on the fourth quarter results, how much the Houston Interests contributed to the top line?

The Houston Interests revenues for the first six months -- it was little less than -- is 40 million to 50 million. So I would say it was 20 or so in the fourth quarter.

And Kevin is your expectation similar kind of revenue contribution in 2018?

Above that or a little better, I mean they have been impacted by the same -- both same things that have been impacted in the rest of our business.

I want to sure I understand what's going on Electrical infrastructure. If I heard you correctly John, it sounds like that yours part of the scope will be done by the end of this calendar year. I actually thought it was going to be mid calendar 2018. A, you will hear that properly and B does that mean that the revenue profile also had compared months properly kind of gets in half in the march quarter for Electrical infrastructure?

Yes, I think -- I'll let Kevin give you maybe some of the numbers, but strategically we have decided that we are not going to be chasing as a general contractor or as an EPC contractor of the full projects on a gas power generation. And while we still think there is opportunities out there for us to provide specific packages around either the electrical work or the piping work or the boiler erection to take on a whole project is something there is not -- there is no longer in our strategic plans. As part of the modification to the contract and our agreement with our client, some of the work that we had anticipated we would complete, they will be doing with in a direct subcontractor situation. So that removed -- that’s the reason for the backlog reduction for us and the fact that that workers come away from our responsibility and gone to our clients responsibility also minimizes the amount of time that we're going to have to spend on the job site. So while we may have some folks on the job pass January 2018 and majority of our work will be completed by Christmas of this calendar year. So the balance of the work in that segment evolves around our high voltage business where we're doing a lot of substation work, we do transmission distribution work, we provide other electrical services and to generating facilities whether its repair maintenance or small capital projects. I think we announced a few months ago, we're providing all the electrical services on a combined cycle job at PSE&G in the North East. So the balance of those services are the demand in our markets continue to be very strong, we got a very strong brand position there. And so our expectation is to continue -- is continued at those levels and grow those levels frankly strategically as we expand our services offering outside of the North East. And we're already starting to see some pull into the Midwest for us to do that.

So John, when you look at the fourth quarter, our revenues for that segment were 100 billion. That’s going to be a high mark. We're not going to -- I wouldn’t expect us to see that revenue volume as we in any quarter in fiscal '18. I think you will see a higher level of revenue as we complete that project in the first half of the year and then it will get down to a more normal level. And as John said, the ongoing business has been more than somewhat more than half of the revenue in that segment. So you should expect quarterly revenue of -- it could range from 50 million to 70 million depended on what projects are going on.

Perfect, just sort of looking for Kevin. And how much was the adjustment in scope to the backlog number? What was that number?

It was 79.2 I believe.

So I guess one follow-up question then is, is you looking for growth in revenue year-over-year, you're going to have a drop in second half of revenues from the Electrical Infrastructure business. I think you've kind of indicated that the turnaround business is not going to be particularly strong recently in parts of the delays from Harvey and so in the oil and gas side of the business. Can you kind of reconcile your confidence in the top line growing year-over-year given some of these puts and takes you kind of put out there?

Right, I would tell you that I think that the Electrical Infrastructure piece of the business will be up slightly from what would be traditionally our business. If you take out the power generation activity, the Oil Gas & chemical and the Industrial businesses, we think will be up significantly not only from the impact of our expanded engineering capabilities and the new markets that bring, but also we're seeing a lot of strength returning in our mining and minerals and minerals business. And then in from a Storage prospective while it's been sort of flat because that's we haven't been able to replace the Dakota Access Project completely, but we have replaced with several projects that we're working on currently and some of the larger projects that are in our current pipeline that we didn't expect it to bring in the backlog in '17. We're nearing the -- we’re nearing the point where we think some of those projects will in our backlog in this calendar year. So, we will start to see some more growth in the back half. The other thing is in the -- didn't want to mislead on the turnaround that so the -- what we're seeing in the turnaround markets based on the bookings and expectations from our clients is both the fall and the spring will be some of the strongest turnaround seasons that we’ve had for a couple of years. We’re just being cautionary on Harvey that it could delay the start of some of the turnarounds that we’re working that we’ve got plan to do in the fall, it could move from our second quarter into our third quarter or could move later into our second quarter, but we don’t see any of those getting permanently delayed. It’s just kind of moving around those revenues. So our expectations this year on a consolidated basis through the course of the whole year that our turnaround business will be a lot higher than it’s been in the past few years.

Thank you. Our next question is from Matt Duncan of Stephens. Your line is open.

So just sticking with the question on guidance. I am hoping maybe you can give us a little more comfort around the storage business. I know you’ve been expecting John these awards to come in. For some time they have been slow to materialize and I guess they haven’t yet because your backlogs still are really low level there. Where does the degree of confidence come from that these things are about to go into backlog? And when they do, how bigger projects are we talking here? I mean you see multiple hundreds of millions of dollars some of the large type or sort of what type of stuff are we looking at?

We’re working on just our traditional tank business which is seeing a very strong demand for just the construction -- engineering and construction, fabrication of our normal flat bottom tank business and that’s going on little bit of everywhere. We are seeing on full terminal projects, which is where we strategically seeing the growth in our business. Those are projects anywhere from say 10 million to 250 million kind of projects. And so, one or two of the larger ones obviously make up -- will make up dramatic change in our backlog in that segment. And I will tell you that we’re at -- hopefully, because of our strategic shift and the things we have done to our business, I think it’s also because of what’s going on in the market. We are seeing a very, very large demand for full terminal applications and storage whether that’s crude whether it's refined products, whether that’s chemicals, whether that’s LNG for export or it’s small scale LNG for export or for fueling stations. And so this is just a very large demand. And I think a lot of the people that are looking at these projects and they are not all developer projects, some of them are by very well-funded special purpose companies there by blue-chip companies that we do business with all the time that -- but I think they are all being a little bit more robust. And their process are getting to financial close, making sure their off-take agreements were signed up, make sure they got the right financing in place, make sure all the permitting is completed. So there is just a little more diligence that we are finding around, getting these projects to completion that we maybe we would have seen two or three years ago. And so, we think that there market demands out there. We think our position in the market is really, really good. And based on some of the things that we have been working on, as I mentioned before we are in some final negotiations on some contracts on some storage related projects, so that’s kind of why we have said that we feel the backend of our year will be stronger than the front end as we bring these things to close, and we're being just probably a little bit more cautious on the timing to get those across the finish line.

Okay. That makes sense. And in the Oil Gas & Chemical segment, you've obviously had a very nice progression of revenues there throughout fiscal '17. Can you talk about sort of what you think the trend line is going to be there in fiscal '18? Is that momentum is going to continue? And what kinds of revenue do you think that segment is capable of producing this year, if you see turnaround work start to come back? I assume that you're getting access to work you didn't have before the Houston Interests acquisition. What is that segment now capable of from a top-line perspective?

So, we're probably -- could probably have a run-rate of somewhere over a $110 million per quarter in that at the back end of the year. We're seeing -- we're getting access into gas processing cryo plants through their capabilities where like I said we're seeing more strength in our turnaround business and we expect tempered by Harvey's impact where we were expecting a higher turnaround season in the spring that's even higher than what we were expected as a improved turnaround season in the fall. And then there is a lot of other opportunities for us and sulfur processing, we're seeing a lot of that work as a result of the expanded Matrix's PDM design capabilities coming in. So, we expect through the course of the year for this our revenues there to continue to trend up.

Thank you. And it looks like we have a follow-up question from Tahira Afjal of KeyBanc Capital Markets. Your line is open.

Thank you. I guess as a first question, follow-up question John. When we were sitting around this time last year, there was a lot of enthusiasm that we were going to see a record spring turnaround season and that didn't happen. And I guess, is there something different in your conversations from where you are in terms of ready of process of turnarounds that giving you this confidence?

So, I would tell you that from the fall perspective is that we're fully booked. And from the turnaround work that we've seen and some of the planning work that we've done through the spring although it was light, it's we can tell the intentionality from our clients is that the turnarounds that they're going to do will have largest scopes associated with them that we've seen. So while we've been active in the turnaround market for the last couple of years, the amount of money that was being spent was significantly lower than what we were used to. So based on the bookings that we're seeing for our turnaround services based on our appreciation for the environments that our clients are in, all lead us to the conclusion that our turnaround markets will be stronger this fiscal year than they were last year.

And then John, to the extent Magnolia LNG gets pushed out let's say another year. Can you still meet the lower end of your revenue guidance?

Yes. So, Magnolia is an opportunity -- it's a positive opportunity for us, if we were selective to be the storage contractor for that project, but it's not anticipated as a project in this fiscal year.

Thank you. And that concludes our Q&A session for today. I'd like to turn the call back over to Mr. John Hewitt for any closing remarks.

Yes, thanks everyone for listening to this call. As a final note, I just want to ask you not to judge the performance of our people and the business on the last 12 months. We have a 30-year history of growth and successful operations built on our core values. These core values are the bedrock of our culture. They are essential to every decision we make and as by living our core values that we have earned the trust and respect of our employees who believe Matrix is a great place to work. Our customer base and that includes some of the largest blue-chip companies in the world and our shareholders. I want to thank you again for your continued trust and support and I look forward to speaking with you all in the near future.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Everyone have a great day.