Powell Industries, Inc. (POWL) Q4 2016 Earnings Report, Transcript and Summary

Greetings and welcome to the Powell Industries Fourth Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. An interactive question-and-answer session will follow formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I’d now like to turn the conference over to your host, Ms. Natalie Hairston, Senior Vice President at Dennard Lascar Associates. Thank you. You may begin.

Thanks, operator, and good morning, everyone. We appreciate you joining us today for Powell Industries’ conference call to review fiscal year 2016 fourth quarter results. We’d also like to welcome our Internet participants listening to the call that is being webcast. Before I turn the call over to management, I have the usual details to cover. If you did not receive an email of the news release issued yesterday afternoon and would like to get one, please call our offices at Dennard Lascar and we will get one to you. That number is 713-529-6600. Also, if you want to be on the email distribution list for Powell releases, please relay that information to us. There will be a replay of today’s call and it will be available via webcast by going to the Company’s website at powellind.com or a replay will be available by telephone until December 14. The information on how to access the replay was provided in yesterday’s earnings release. Please note that information recorded on this call speaks only as of today, December 7, 2016 and therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay listening or transcript reading. This conference call includes certain statements related to the Company’s expectations of its future operating results that may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements. These risks and uncertainties include but are not limited to competition and competitive pressures, sensitivity to general economic and industry conditions, international political and economic risks, availability and price of raw materials and execution of business strategies. For more information, please refer to the Company’s filings with the Securities and Exchange Commission. With me on the call are Brett Cope, Powell’s Chief Executive Officer; and Don Madison, Chief Financial Officer. Now I’ll turn the call over to Brett. Brett?

Thank you, Natalie, and good morning, everyone. Thank you for joining us today to review our 2016 fourth quarter and year-end results. I’ll make a few comments and then I’ll turn the call over to Don for more financial commentary, before we take your questions. Our results for the fourth quarter reflect the positive trends we have experienced from a majority of our operations throughout our fiscal year. As highlighted in our last call, our Houston, UK, Canadian operations continue to execute well on meeting customer commitments while maintaining a strong focus on meeting productivity and manufacturing efficiency goals. Strong operational performance of these divisions continued in the last quarter. Our consolidated fourth quarter revenue decreased primarily due to fewer bookings over the past several quarters. Orders continue to be a major challenge. We ended the year with a backlog of $291 million, our lowest level since 2005 and 34% decline over the last 12 months. Our bidding activity has remained constant in the fourth quarter; however, the average size of the projects continues to be smaller. There is a lack of large projects available across all market segments. We are also experiencing an increase in the number of requests to rebid the same project due to revisions in the scope of supply or providing multiple options to help our customers justify project funding. This process adds significant time to the order cycle process and increases uncertainty around the timing of orders. In some cases, it appears that this multiple rebid process is placing a disproportionate waiting on the initial purchase price versus the total electrical solutions cost when considering commissioning, installation and start up. Our model is one providing a complete solution under one roof to reduce if not eliminate most risks. Looking forward, while there have been improvements in some of the fundamentals and market sentiment, we have not seen any significant increase in our customer spending behavior. We feel that across the company, we are well-positioned to support an increase in business activity and we are ready to respond when conditions improve. In the longer term, there are early signs of additional investment in the U.S. petrochemical and refining infrastructure, along with possible additions to LNG market, all driven by the availability of low-priced gas. From an operational perspective, we intend to remain intently focused on developing a favorable balance of cost reduction initiatives, research and development advancements and geographic expansion into growing markets. Let me briefly discuss each of these. First, our prudent and strategic company-wide cost reductions, including restructuring totaled nearly US$10 million in fiscal 2016. We will continue to be vigilant on our variable costs and closely evaluate the need for future adjustments for our fixed costs in response to challenging market conditions. Second, we have remain committed to our research and development activities. We're working on several new innovative products, which we anticipate releasing in the near future. In addition, we are working on streamline designs of existing products that will help improve the competitiveness of our offerings and reduce our manufacturing costs. We believe these developments will provide increased benefits, improve safety and enhance communication features to our customers. We believe R&D is a paramount investment in Powell’s future and will have a positive and far-reaching impact on our business. Finally, we continue to make progress growing our markets where we have not had a strong presence historically. We continue to see geographical opportunities such as in the Middle East that would extend the strength of our electrical and integration solutions. We are also working to capitalize on Powell’s full breadth of service and aftermarket offerings around the install base of our brands including the PowlVac product line. Powell will continue to boost operational efficiency, reduce costs and improve customer satisfaction. On behalf of the entire management team, we have and will continue to manage our business carefully until our market recovers and order activity improves. Before I turn the call over to Don, I want to address my recent CEO appointment. First, I’d like to thank Tom Powell and Don Madison for their support and guidance. I have enjoyed working closely with them and look forward to our future collaboration. I’d also like to thank the employees, customers, and suppliers that have reached out to me since the announcement six weeks ago. As I shared with them at the time, despite some significant challenges ahead of us, I'm very excited about my new position and I'm truly optimistic about Powell’s future. With that, I will turn the call over to Don. Don?

Thank you, Brett. Fourth quarter fiscal 2016 revenues decreased by $32 million or 20% to $130 million compared to $162 million in the fourth quarter of fiscal 2015. Domestic revenues decreased by $24 million or 20% to $99 million and international revenues decreased by $8 million or 21% to $31 million primarily due to the decline in our project backlog. Gross profit as a percentage of revenues increased to 20% in the fourth quarter, compared to 18% in the fourth quarter of fiscal 2015 due to improvements in our international operations driven by improved project execution, operational efficiencies and reduced cost in our Canadian operations. Selling, general and administrative expenses as a percentage of revenues increased to 13% in the fourth quarter, compared to 11% a year ago primarily due to lower revenues. In the fourth quarter, we incurred $738,000 in restructuring and separation cost as we work to align our operating cost with market conditions. We reported fourth quarter net income of $5.5 million or $0.48 per diluted share. Excluding restructuring and separation cost, non-GAAP net income in the fourth quarter of fiscal 2016 was $6.2 million or $0.54 per share. Fiscal 2016 revenues decreased by 15% or $97 million to $565 million primarily due to a decline in our project backlog as we continue to see lower demand from our customers in the oil and gas markets. Gross profit as percentage of revenues increased to 19% in fiscal 2016 compared to 16% in fiscal 2015 as result of improvement in our international operations. Our Canadian operations have overcome the project execution and operational efficiency challenges that occurred in prior years as we implemented our project-based integration model and relocated into a new facility. Additionally, our UK operation improved due to project execution. The increase in gross profit from our international operations was partially offset by declining gross profit from domestic operations as margins were negatively impacted by reduced volumes and cost overruns related to a large US-based transit project. Selling, general and administrative expenses decreased by $2 million to $75 million in fiscal 2016. SG&A expenses as a percentage of revenues increased to 13%, compared to 12% in fiscal 2015 primarily due to year-over-year of revenue decline. In fiscal 2016, we incurred approximately $8.4 million or $5.9 million net of tax in restructuring and separation cost as we aligned our management, salary and hourly workforces with anticipated production requirements. We recorded a income tax provision of $2.3 million in fiscal 2016 resulting in an effective tax rate of 13%. Our effective tax rate was favorably impacted by the mix of income from our international operations, which have a lower statutory tax rate as well as the utilization of net operating loss carry-forwards in Canada that were fully reserved with a valuation allowance. In addition, our effective tax rate was favorably impacted by the retroactive reinstatement of the U.S. R&D tax credit. For fiscal 2016, we reported net income of $15.5 million or $1.36 per diluted share compared to $9.4 million or $0.79 per share in fiscal 2015. Excluding restructuring and separation charges, net income for the year was $21.4 million or $1.87 per share. New orders received during the fourth quarter were $111 million resulting in a year-end backlog $291 million, compared to a backlog of $312 million at the beginning of the quarter and $441 million a year ago. At fiscal year-end, we had cash of $98 million, compared to $44 million at the beginning of the fiscal year. For fiscal 2016, cash provided by operating activities totaled $75 million. Investments in property, plant and equipment totaled approximately $3 million. Also during the fiscal year, we paid dividends totaling $12 million and repurchased approximately $4 million of company stock. Long-term debt including current maturities totaled $2.4 million. Looking forward to fiscal 2017, we continue to be adversely affected by uncertainty in our markets. And unless these conditions improve significantly, our backlog and current business conditions are not likely to improve over the short-term. Revenues for the first quarter are not likely to improve sequentially from our fourth quarter and are expected to continue to soften during fiscal 2017. During fiscal 2016, we took steps to reduce our operating cost and we will continue to monitor and adjust cost going forward. But as a result of uneven production loads in our factories and very competitive price pressures, we expect to report a net loss for fiscal 2017. Due in part to uncertainty of order activity, fluctuating revenue trends, and the evolving nature of our business, including the continued alignment of our operating cost with market conditions along with other initiatives, we are suspending the issuance of annual financial guidance. It is important to note that our financial position remain strong. At the end of the fourth quarter, working capital totaled $186 million of which $98 million was cash. We have virtually no debt and have over $55 million available under existing credit facilities. Despite the challenges we face from an earnings perspective during fiscal 2017, we expect to strengthen our balance sheet, generate positive cash flow from operating activities and improve our cash position. At this point, we will be happy to answer your questions.

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from John Franzreb from Sidoti & Company. Please go ahead.

Good morning, guys.

Good morning.

Good morning, John.

I guess, first, can we just flush out a little bit about the rebidding process? How of that is projects that have not yet begun versus changes that are – projects we have already started?

I’m not quite – when you mean projects that haven’t already started – projects that haven’t awarded. It’s a mix. So on projects that haven’t been awarded, I’d say the activity in the fourth quarter picked up and that sort of behavior, we are seeing a lot more – either general request back out to the market for a full rebid or even when it gets down to a smaller slate of competitors, more options to try to see what they can live without, trying to drop the cost of the project down, get it justified, a lot more of that behavior in Q4.

Okay. And is there any significant changes to projects that are already underway as far as scaling them down, pushing back on cost at all?

I haven’t seen that. There is some activity we talked about here in the future, but it’s still a lot of what-if and unfunded projects, but not a lot of the rebid activity that we are seeing on funded projects.

Okay, great. And then in regard to restructuring actions that you’ve already taken and got a little bit similar or – works, can you kind of walk us through what you are doing? How much is permanent out? And when we'd expect to realize some of that benefit?

John, when you are looking at the benefits that we’re realizing from actions taken in the past, year-over-year, about half of that – big part of that was taken early in fiscal 2016 midyear, so we got benefit in 2016, so when you are looking at year-over-year improvements based on actions taken today, there’s probably about 50% of incremental benefits yet to come. When you are looking at what we’ve, most of it was in our workforce realignment. Overall – our headcount overall was down about 26% and over 30% of that is in the productive workforce, which would have to be rehired and retrained when we start seeing volume improvements.

Okay, got it. And that was – you are thinking about as far as the year ahead, similar type of workforce related reductions based on where the volumes play out?

At this point in time, our production loads are so choppy. We have facilities that have very little work in the next – in the 60-day window, but yet they’ve got work sacking up in the early summer time period. So how we are going to try to manage through that and make sure that we can deliver on the customer commitments that we are taking and work to fill in the holes in our production plan with other work is what we are trying to deal with today. Our success is filling in those holes will ultimately depend on some of the financial results, but we need to maintain our workforce to deliver some of the work that’s just been committed to.

Okay. Got it. Got it. I will get back into queue. Thank you.

Our next question is from John Tanwanteng from CJS Securities. Please go ahead.

Good morning, guys. Thank you for taking my questions and, Brett, congratulations on the appointment.

Thank you, John.

Can you quantify how much the pricing competition and the rebids are actually impacting the margins of projects that are going to backlog now?

I’d add that price competition in the fourth quarter we talked about last call definitely has been increasing throughout all of 2016 and I’d say it continue to increase a little bit in the fourth quarter, more than alike. It’s hard to quantify exactly. Each project is different; some of it depends on the timing. We’re still seeing prevalent of faster cycle projects, that’s an area we continue to excel at when the scheduled delivery is shrink down. We don’t have to give back as much projects that have more schedule to give. I’d say the price – the effect of price is much greater. So it’s a wider range and definitely increased to negative in last quarter.

Okay. Is there anybody out there being irrational in terms of pricing and if so is it in a particular end market or segment that you are seeing?

I appreciate that, John. From my perspective, there is quite a bit of rationality in the market, it’s across the board. We’re seeing – in our traditional competition, I think it's just – my perception would be trying to do the same thing we’re doing, trying to take projects with prudent risk and then there's a lot of other players that have come in, in these times and we’ve talked about terms and conditions last call, that’s another area that continues to something – we are going to have discipline – decision-making around what projects are right for Powell, so we are seeing some other players come in and sort of skew the market in the short term of that and that’s another challenge we are grinding through.

Okay, got it. And then if you could help us understand what percentage of the revenues in your backlog are now directly oil and gas, maybe delineate them by upstream, midstream and downstream if possible?

Clearly, we don’t have the breakdown by upstream/downstream, but overall I would still believe that we’re about 50% oil and gas in the backlog. The issue is not – we’ve talked about it last call. The sectors that we’re getting business from have not changed dramatically; it’s the size of the projects that have changed. So when you're looking at the decline in orders and the decline in backlog mix has skewed some away from oil and gas from where it was 18 months ago, but it still a dominant part of our business.

Yeah, I agree. Upstream offshore is way down. Upstream onshore is down, but there's still some activity. Petrochem again still some activity. And chemical…

Some activity.

… I’d say down a little bit right now.

Okay, great. And then Brett, just any changes in focus of strategy versus what Tom was doing? What do you expect in that [indiscernible] now that you are in-charge?

In the short-term, no major changes. We are going to stay very focused on what we can control in the market and deal with the short-term challenges that we have. The team in 2016 across all of our divisions have really done a great job on the cost efficiency side and focusing on getting our customer satisfaction building those long-term relations. That’s really one of the strengths of Powell. We are a relationship business and we are going to stay extremely committed to that plan. I am looking forward to the future discussions with Tom and the board about where I think the company can go, but in the short-term we need to stay focused on getting through this grind in 2017.

Great. I will jump back in the queue. Thanks.

[Operator Instructions] And our next question comes from Roresa Mojo from D.A. Davidson. Please go ahead.

Good morning.

Good morning.

Good morning.

Yeah, this is Mojo in for Brent. Going back to the price competition and the rationality of the market, do you guys beginning to take more jobs at no margins or are you guys walking away?

Mojo, it’s a mix. We definitely have come down. Taken some projects at margins that historically are from an historical perspective are lower than where they were just a year ago, but we are being prudent. It’s combination of price and risk. When we see a job and you look at the electrical solution, it maybe just all gear, it may go into a substation. These can really vary in complexity. That’s one of the strengths of Powell and we see the RFQ, we have a pretty good team that can analyze the project, understand those risk points, we know that – mid project, these kinds of risks, we’ve seen these behaviors and we kind of take that into effect as well. If it’s cleaner, we feel its more matches with what our strengths are. We might be willing to go down a little bit on the margin because we know mid to late project risks won’t be as great. So those kind of granular conversations are going on much more frequently across the company.

Mojo, let me just clarify that we have not knowingly booked business in the last quarter with no margin.

All right, thank you, thank you. And I guess this is more of a wider question. Talking about the market uncertainty and order activity, which one – what would you consider to be more temporary and short-term in terms of uncertainty? And have there been any, I guess, new factors that appeared in the past quarter like the election that is causing uncertainty?

On the back part of your question, I don’t think there is any new factors in last quarter, sentiment has changed and you just kind of travel around and you talk to folks and it’s a lot of what-if, but no fundamental change in the approval of projects or the change that have affected competition in terms of wining an order. And I don’t know if I can – maybe the first part of your question, trying to quantify – in the short-term, I don’t think there is going to be any significant change to what we saw in the fourth quarter. It’s going to – there is activity – our bidding activity in the fourth quarter did not fall off from the third quarter, but the process of grinding through those bids, the rebid process, the focus on first purchase price, I’d say that part continued in the fourth and I expect it to continue into our first quarter here, into the second quarter even.

And I guess – just one more, are you guys hearing anything in the industrials market or utility market?

On the utility as a segment, we talked this year about the T&D market that continues to sort of maintain an increased level, year-over-year from 2015 to 2016. Although the size of the projects don’t replace some of these larger petrochem and process industry projects that have gone away. There is some activity there that’s been beneficial to Powell. On the generation, I think it’s down for Powell year-over-year, but it is sort of spotty. There is still generation activity. New plants that are being worked and we are still competing for those.

All right. Thank you.

Our next question comes from John Tanwanteng from CJS Securities. Please go ahead.

Hi, guys. Just a quick follow-up. You’ve beat pretty handedly [ph] on the gross margin a couple of quarter in a row now. Any reason why that performance would or wouldn’t continue? I know you are obviously facing the margin pressure, but as you establish how profitable you are going out, what are the factors that are going into the pretty significant piece compared to what you thought going in?

From an operating efficiency and productivity standpoint, I think we will continue to see improvement, but it’s going to masked by lower volumes, factory absorption issues, as well as the price pressures that will be more relevant in the coming quarter as orders that’s been booked more recently start flowing through our revenue stream. So gross margins will have downward pressure on them over the next couple of three quarters, but it’s going to become a volume price issue, not a productivity efficiency issue.

Got you. And how do you expect the cadence of that to progress? Is it going to steadily decline over the next three quarters or do you expect to see a step function given where margins are on the backlog and the scheduling of projects or how should we think about that?

The price issue that we are going to be dealing with will be more steady over the coming quarters, more recent work obviously being price competitive work that was booked in some quarters in the past. But the volume issue, which is the real variable, is going to be hard to predict. How many of the production holes that we are able to fill, how many ultimately end up with work well below where we need to be, but yet we need to maintain our workforce for business that we’ve committed to 30 days down the road. Those are the issues that we are going to be dealing with this coming year is the volatility and the lumpiness and the bumpiness across our production schedules at multiple factories as well as the very short cycle that we are getting today from a order intake standpoint.

Great. And then one last one, when do you think we may see recovery in capital spending, even if oil prices were to be higher tomorrow, when would that actually impact you guys on the P&L basis given where you stand in the cycle?

From a business perspective, once our market start recovery and order activity begins to improve, our cycle from a revenue recognition standpoint is going to be six to nine months later. Engineering work will obviously be quicker, but when you look at the bulk of the revenue stream, it comes in the latter half of our production cycle.

Great. Thanks again guys.

Our next question comes from John Daysher from Pinnacle. Please go ahead.

Hi, good morning. Just a point of clarification. On the backlog, the percentage being oil and gas, did you say 15% or 50%?

50%. Roughly half of our backlog is oil and gas related.

Okay. Is it skewed to more toward oil or gas?

I think it’s more oil and petrochemical. I think in the future there is a lot of conversation in the quarter that trouble around about future gas projects from the Middle East to domestic here in the States and even in Canada, but other than…

Being still…

I’d still say in the future.

Okay. And for the year as a whole, the revenues have been 50%, oil and gas as well?

In 2015, it was closer to 65%, two-thirds of our business. Over the last 12 months, it has slowly declined.

To what? 50% or so?

Roughly 50%.

Roughly 50%.

Okay, all right. You mentioned irrational pricing by a number of your competitors, is there any level of this stress in the marketplace, I guess, in terms of competitors even either going out of business or perhaps being available for sale at a reasonable price?

Most of our competition are from major players where we are competing with divisions of Fortune 500 companies and as a result, their financial stability is very strong. There are some small players in certain select market sectors – regional markets where people have either closed the doors temporarily and/or maybe in the near future, but those are very small players that have very minimal impact when you look at the market volume overall.

Okay. So your major competitors are still in business and probably likely to continue today?

That is correct.

Okay, good. And then final question, can you give us any idea what the CapEx budget is going to be for fiscal 2017?

Looking at the project list that we’ve pulled together over the last few months, we see potential needs of $5 million to $7 million, but we are going to be very prudent as to making those commitments, looking – focusing on safety, quality, equipment that is no longer producing parts to speck. We are not looking at any equipment that would be capacity related.

Okay, but $5 million to $7 million, still it sounds like double the $3 million or so that you spent in this fiscal year?

$3 million was an abnormally low year. Historically, our maintenance CapEx has been in the $5 million to $10 million range. It’s still, I believe, will be on the lower side in 2017.

Right. Okay, good. Thank you very much and good luck.

Thank you.

Thank you.

Our next question comes from John Franzreb from Sidoti & Company. Please go ahead.

Yeah. In your remarks earlier, you kind of mentioned that there’s some large projects that you expect to start this summer. It sounds like the hole in the revenue profile is kind of getting from here to there. Is that where the biggest risk is in the next – I mean, in two quarters of you booking a loss before you get to that part and the potential [indiscernible] smaller projects to take away some of that spend?

John, when you are looking at the production load profile, when you get inside of six months, we get a lot of anxiety. And our issue is that we are going to be having to deal with in the second quarter. Even in the first quarter, we had some work that was – by the customer request, it was pulled forward into our fourth quarter that’s created some challenges at specific facilities in the first quarter. The second quarter is our concern, but it’s more so because of timeframe, availability of time to – even if we were successful booking a project, getting it through engineering, all the approval process and get it to the fact where we can actually start cutting metal. There is a window after that where we are seeing work begin to fill in and gives us more confidence of what the summer is going to look like. Beyond the summer, it’s – the visibility is very, very weak at this point in time that we are seeing this, as Brett mentioned, a lot of rebidding process. So being able to predict when something is going to actually be let and projects are going to go forward. And then even on some of the projects that we have been awarded recently, there were couple of them that within the first 90 days before we even really get into the engineering are moving out two and three quarter, smaller projects, but nonetheless, it makes it difficult to understand what our true requirement is from a factory loading perspective is going to be particularly in the second half of 2017. I don’t know if that color give you any help or not.

It’s exactly what I was kind of looking for Don. You also mentioned earlier that your Canadian operations, the problems that plagued the unit are behind you, can you just talk about the demand profile, the revenue profile that surrounds the Canadian operations, what it looks like today versus three months ago?

From the Canadian operations at some of the area we saw some work push out last year that those projects are going forward, so we do have a base business to support the factory. The first of year, we have been booking more business outside of the Alberta Oil Sands region, that is helping out and that activity is growing. So we are doing what we talked about when we first entered into Canada. We started out with our strength, which is oil and gas and we have been working hard over the last two years to develop our channels to the market and our relationship with customers outside of the oil and gas space. That is going to help us mitigate the issues with lower production in 2017.

Got it perfectly. And you mentioned R&D spending, there is a commitment there, can you just talk about what the opportunities are as far as product development, what you are looking at as far as market, some color there would be helpful.

I think the – the tone what we are trying to say is that, we’ve been spending a little over $6 million in R&D over the last couple of years and that’s an area that we do not want to comprise. We want to continue those investments because they will benefit us long term. A lot of the short-term work is in the features and cost improvements and projects. We’ve completed some projects this past 12 months this summer that we believe will have favorable benefit on our efficiencies and our material cost as well that will benefit us in 2017, but we are also looking at some new technologies that we are working on, the exact timing of those is when we will be able to release them to marketplace is more – I mean, it’s more difficult to predict because of the uncertainty around some of the projects that we are working. But we see enhancements in communications, enhancements in the ability of customers to gather information out of our equipment and the ability to monitor the systems as well as just managing the power. Any other comments?

There is a lot of talk in the industry in the last couple of years around bringing in the digital technology into our electromechanical work. Some of our direction that will be coming over the next one or two years will embrace that. Sort of, as Don said, focusing on – in the short-term on some technology on the sensor side, that will increase the amount of data available for analytics and asset management.

Perfect. Thank you, Brett.

Our next question is from Jon Braatz from Kansas City Capital. Please go ahead.

Good morning, guys.

Good morning, Jon.

Brett, Don, obviously, you’ve been through this cycle many times and as you look out towards 2017, 2018 and so on, where might the green shoots begin to emerge and you can turn a little bit more positive, is it – is there a particular market niche that you would – if it start improving, you’d get some additional confidence or let me phrase it a little bit differently, is it just the size of the orders that boost your confidence or is it the number of orders, can you give me a little sense as to what might spark some enthusiasm so to speak?

Well, I think in the area of gas, feedstock, what will that do to potentially – we have this fairly large petrochemical wave in the states a few years ago that Powell participated in very well. Lots of those companies had plans for additional ethylene crackers. The LNG side of things as you know from this – from a macroeconomic – I don’t want to suggest that what just happened to OPEC is going to help Powell in the short-term, but it will create an interesting dynamic in the market to watch relative to gas. So as that oil pricing sort of oscillate, I think, later this year, we will see what happens to gas and will that create a favorable environment to fund additional terminals or export, it’s very unclear. But I think that’s going to be the area that we are going to watch very closely on the gas side. And I think that’s probably the biggest green shoot in the near-term.

And general economic growth.

Yeah.

What about the size of the order? Would you begin to see some – grow more positive, you saw the size begin to improve?

Yeah, of course, we start to see some – some larger orders actually head towards funding, definitely be more positive. If we are fortunate to win those and put them into our production cycle, it smooths out our production cycle over the course of the fiscal year and improves our operations at much more. There is a lot of what-ifs out there on large projects and, as I said earlier, I think the sentiment on some of these is, there is a lot more conversation, but the fundamentals on approving these projects, I haven’t seen that change it.

The size of our project somewhat correlates to the size of the capital investment for the facility that’s being built. So that the larger – the capacity or the new investment is, the more motors, the more electrical equipment they are going to need and therefore the larger the opportunity there is for Powell.

Thank you, Brett and Don.

Thank you. I’d now like to turn the floor back over to management for any closing comments.

Thank you, Matt. Our 2016 proved that our teams Powell working both within and across our division lines are driving to deliver superior price execution and improving our efficiencies throughout our operations. We remain committed to R&D plans. We remain committed to further leveraging our service capabilities that support the investments our customers have made in our brands and taking steps toward growth in strategic geographies and market segments. Despite our lack of visibility going into 2017, the teams across Powell have the right attitude and the right mindset. We are focused on maintaining our strong financial position and continuing to generate positive cash flow. I’d like to thank everyone for their continued support and we look forward to speaking with everyone next quarter.

This concludes today’s teleconference. Thank you for your participation. You may disconnect your lines at this time.