Ladies and gentlemen, thank you for standing by, and welcome to the Matrix Service Company Second Quarter Fiscal 2020 Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session.

[Operator Instructions] I would now like to hand the conference over to your speaker for today, Kellie Smythe. You may begin..

Good morning, and welcome to Matrix Service Company's second quarter earnings call. Participants on today's call will include John Hewitt, President and Chief Executive Officer; and Kevin Cavanah, Vice President and Chief Financial Officer.

The presentation materials we will be using during the webcast today can also be found on the Investor Relations section of the Matrix Service Company website.

Before we 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 that constitute forward-looking statements for the purposes of the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those indicated by these forward-looking statements as a result of various factors, including those disclosed in our annual report on Form 10-K for our fiscal year ended June 30, 2019, 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, periodic SEC filings, and on the Company's website. I will now turn the call over to John Hewitt, President and CEO of Matrix Service Company..

Thank you, Kellie. Good morning, everyone, and thank you for joining us. As we have referenced on our prior earnings calls and in countless conversations, our corporate values and sense of purpose is at the heart of everything we do at Matrix and influences our thinking about the company’s long-term strategy.

The issue of purpose for Matrix Service Company is the one that we had given a lot of thought to. Our purpose is to deliver a brighter future, improved quality of life and create a long-term value for our people, business partners, shareholders and communities. This focus is integrated in our strategy and the commitments we make every day.

Fulfilling our purpose requires that we also achieve a consistent level of performance, which allows us to invest in our people and our business, deliver on our commitments, and brand promise and achieve sustainable, long-term value for our stakeholders. This quarter’s call will address the key decisions made to ensure we are able to do so.

Turning now to our business discussion. Our second quarter results were decidedly mixed as market challenges, and performance issues and select parts of our business overshadowed strong performance elsewhere.

As a result, we have made strategic organizational decisions that we believe are necessary to better position the company for success in the end markets with the greatest potential for long term growth. I'll discuss these decisions further, as I comment on each segment.

Underpinning these decisions is a strong balance sheet and liquidity which will allow us to execute our strategy for improved performance and growth. Specifically, in the storage solution segment, our project performance and execution has been exceptional, creating earnings greater than planned, and our opportunity pipeline continues to be strong.

While the book-to-bill for the second quarter may not numerically support this, subsequent bookings in January, verbal awards and contract discussions along with a strong near-term proposal outflow would indicate otherwise.

For example, in January, we announced the formal selection of Matrix Service Company as a EPC contractor for Eagle LNG’s, midscale LNG export facility in Jacksonville, Florida. Eagle LNG is investing over $500 million to bring this project to fruition. The EPC contract represents a significant portion of this investment.

However, it is not in our reported key to backlog. The facility level production capacity of approximately 1.65 million LNG gallons per day, with 12 million gallons of storage plus marine terminal and truck loading capabilities. This facility is the most recent example of our position as a leader in the small-to-midscale LNG Terminal Market.

Overall, the outlook for this segment remains very strong, with the potential value of LNG and NGL storage and terminal work to Matrix over the next 12 months to exceed 2 billion.

Our oil, gas and chemical segment performed at a high level with strong direct margins, but a soft turnaround season for our principal clients reduced our overall volumes, leaving construction overhead costs under absorbed.

Specifically, turnaround activities in the quarter was smaller in scope than previous periods and our principal clients are off cycle for heavy turnarounds, both of which resulted in lower volume. We expect turnaround volumes to improve in the back half of the calendar year. We're also involved in other activity in the oil, gas and chemical space.

For example, our construction teams are executing the installation of the previously announced first-ever alkylation unit in the U.S. designed to use ionic liquids, at Chevron's Salt Lake City refinery. This unit will replace an existing HF alkylation unit to produce high-octane, cleaner burning fuels using a more environmentally friendly process.

In the Midstream Gas processing space, it is anticipated that the industry requires another 1.2 billion in new gas processing facilities to kick off in the next 12 months. Our EPC service offering is gaining strong brand awareness and the opportunities available to us is growing.

We expect this work will add solid, incremental value to this segment, and our business. The operating results for the industrial segment were also strong in the quarter, as we reach mechanical completion of a major capital construction project for U.S. Steel.

That said, rapidly changing market dynamics in the iron and steel industry, which comprises the majority of the revenue for this segment have also resulted in a strategic decision to reduce our reliance on this end market. We did not come to this decision lightly, but chose this path for the following reasons.

We previously communicated, that we saw a softening in the market in the second half of the year. This downturn is looking more significant than previously expected, given the commodity price environment.

Contributing factors are trade and global economic issues, as well as supply and demand imbalances, all of which have resulted in these producers looking to alternative business models, shuttering facilities, [Indiscernible] and minimizing maintenance and capital spending.

This combined with the fact that there are very few integrated iron and steel producers left presents a level of client concentration, and a business risk, that is no longer aligned with our long-term growth strategy or financial targets.

Finally, as communicated on previous calls, over the past two years, we've being executing a major capital project for U.S. steel led joint venture called PROTEC that was scheduled to be complete at the end of our fiscal second quarter.

We formally achieved mechanical completion of late November and moved our construction team off site in late December. With this project complete, future earnings for this part of our business were expected to decline. That decline, as I said earlier, has been exasperated by the other market dynamics just discussed.

Our strategic decision to reduce our focus on this end market, while best for the enterprise long term material impacts our industrial segment revenue, as well as related construction overhead cost recovery and margin. It also required us to take a non-cash impairment charge in the quarter.

We are working to reorganize the operations to reflect the revised focus on this market, as well as monetize the associated business assets that no longer fit that strategy.

Turning now to our electrical infrastructure segment, results in the quarter continue to be disappointing despite the fact that Matrix has enjoyed a long history of profitable performance as a contractor of choice in the northeast.

As you may recall, we made a shift three years, three years ago away from full, EPC project generation construction projects to one that focuses on smaller package work, such as centerline erection, mechanical or electric service to other EPC contractors or generation owners.

That shift has been highly successful for us and there's an underlying strength in this segment. The balance of the revenue in this session is provided by power delivery services where localized operating issues have negatively impacted results.

Access to the right talent pool has also been an impediment to organic expansion of our transmission and distribution services and led to poor project execution and low volumes. All over 50% of this segment is and has been operating at or above our expected performance level albeit with reduced volumes.

The impact of the issue just discussed had caused a non-cash impairment in the quarter. After extensive analysis, the company has implemented a performance improvement plan for this portion of the operation, which we are confident will increase revenue volume, gross margins and overall performance as the changes in that plan take hold.

We remain confident in the strategic direction of this market, and our ability to achieve our performance expectations, and while also growing our base through strategic acquisitions. There is no question expanding our working in electrical infrastructure segment remains an important part of our long-term strategy.

That said, before focusing further on expansion, we want to achieve performance improvement from the corrective actions we have identified and implemented. Despite the challenges in our industrial and electrical infrastructure segments, Matrix Service Company continues to be in a strong position, with very robust opportunities.

We remain committed to entering markets are long term infrastructure spending needs, diversified revenue streams, to include markets that are not as commodity price sensitive, and creating a better connection to the growing renewable energy market.

We have developed and are implementing that performance improvement plans that includes a reduction of resources, overhead support and capital expenditures as well as organizational changes all of which will result in improved operating performance across the organization.

While there will be some restricting cost incurred in the third quarter, and we may see smaller near term topline our performance supports our adjusted strategic focus and is designed to improve our competitive platform to live a higher standard of performance and achieve best, better, bottom-line results.

The big picture for our strategic objectives is to improve overall project and business profitability and predictability, attack the gas value chain from mid-stream processing to our core capabilities in speciality vessels and terminals for NGOs and LNG, expand our refining services market share in North America.

Moving to chemicals and petrochemicals with a full suite of services and secure more fixed base maintenance operations, run electrical infrastructure to a nationwide footprint for transmission, distribution, substations and storm response will also define our role in renewables, batteries and digital technology.

We will maintain our brand lead position, include tanks and terminals, while further expanding our tank products offering and finally, we will deploy our storage and terminal capabilities internationally into the Caribbean, Mexico and South America.

While we are operating the business at a lower revenue run rate Matrix will be leaner, and a more focused company. Our business today is anchored by our storage solutions segment, where we are a leader in EPC and fabrication of above ground storage tanks, speciality vessels and terminals.

Our oil, gas and chemical business plays a great foundation for process industry growth, and we are intently focused on fixing issues that have plagued our electrical segments but are confident that we will be able to do so.

Matrix continues to maintain a strong balance sheet and liquidity position, which reflects the company's financial stability and ability to execute our business plan. I'll now turn the call over to Kevin..

Thanks, John. I want to start off by discussing significant non-cash items impacting our financial results. The first item was the goodwill impairment recorded in Electrical Infrastructure segments. The power delivery portion of the segment has a long history of strong financial performance. The segment historically produced gross margins of 9% to 12%.

While portions of the segment's power delivery business in the power generation package will still operate at that historical level, other units within the business have recently underperformed.

That poor performance increased in the second quarter, and deteriorated the overall operating results for the electrical segment, which required us to record the $24.9 million impairment. On an after-tax basis, the impairment charge in electrical had a $0.74 per share impact.

As John said, the long-term market opportunity remains strong and we are confident we will successfully correct the underperforming portions of this business. The second item is the impairment of the industrial segment.

The operating results for the industrial segments have been strong in recent quarters, albeit the prospects for the industrial segment deteriorated significantly in the quarter, as John discussed. Based on that outlook, we recorded an $8 million impairment of goodwill and a $5.6 million impairments of certain intangibles.

On an after-tax basis, the non-cash impairment charges in industrial had a $0.40 per share impact. The next item was tied to the change in the industrial business and the associated impact to the operating performance in a specific entity in Canada. This change required us to record evaluation allowance of 2.4 million on certain deferred tax assets.

The non-cash valuation allowance had a $0.09 per share impact in the quarter. The earnings per share for the quarter was a loss of $1.04, which included these three non-cash items that reduced earnings by $1.23 per share. Excluding the non-cash items, the quarterly adjusted earnings per share was $0.19.

It is important to note that many portions of the business performed well in the quarter, which I will discuss further in the segment discussion. Now, I will move to the operating results for the quarter. In the second quarter, we produce revenue of $319 million, a modest decrease of 6.4% from revenue of $341 million last year.

Our gross margin in the quarter was 9.4% as compared to 8.2% in the second quarter of fiscal 2019. Overall project execution was strong in all segments except Electrical infrastructures. Margins were also impacted by under recovery of construction overhead costs in a couple of segments.

Our SG&A was $23.2 million in the quarter as compared to $22.4 million in the same quarter last year. Our effective tax rate for the quarter was 10.5% compared to 27.4% for the same period a year ago. We previously expected our fiscal 2020 effective tax rate to be approximately 27%.

However, the rate was negatively impacted by the valuation allowance, placed on certain deferred tax assets and goodwill impairment charges that were not fully deductible. We now expect the effective tax rate to be approximately 28% for the remainder of the fiscal year.

Adjusted EBITDA for the quarter was $12.6 million, or 3.9% of revenue, compared to $10.4 million or 3% of revenue in the prior year. Moving to backlog, our backlog was $872 million at December 31 2019, compared to $1.08 billion at September 30, 2019. The quarterly book-to-bill ratio of 0.6 on project awards of 1.97.

In addition, the company had cancellation of previously awarded work of $88 million in the quarter related to the changes in the industrial segment. That blog at December 31 2019 does not include our selection for a significant multi-year project with Eagle LNG announced in January 2020, with construction expected to begin later this year.

Now let's talk about specific results for each of our segments. Revenue for the electrical infrastructure segment decreased from $58 million in the three months ended December 31, 2018 to $28 million in the recently completed quarter. The decrease is primarily due to lower volumes of power delivery and power generation package work.

The segment’s gross margin was a negative 9.6% in the quarter compared to a positive 6.1% in the fiscal 2019 second quarter. The fiscal 2020 gross margin was negatively impacted by poor execution and portions of the segments, including a charge on a transmission and distribution upgrade projects.

The company is implementing a performance improvement plan for the electrical segment which we are confident will increase revenue volume, gross margins and overall performance as the changes from that plan take hold.

Revenue for the oil, gas and chemical segment was $56 million in the second quarter compared to $86 million in the same period last year. The decrease of $30 million is due to lower volumes of turnaround work. While our crews were busy on turnarounds, the size and scope of those turnaround activities was lower than normal in the quarter.

The segment gross margin was 7.5% for the quarter compared to 10.6% in the same period last year. Project execution was strong, which resulted in good direct margins. But the lower volume of work led to under recovery of construction overhead costs, which negatively impacted gross margins.

Revenue volumes, and gross margins are expected to increase from the last half of fiscal 2020 from increased capital and engineering work. Revenue for the storage solution segment was $143 million for the three months ended December 31 2019, compared to $126 million in the same period last year.

The increased results are from tank and terminal construction work and higher levels of capital works in Canada. Excellent project execution resulted in a single gross margin of 13.9% in the quarter, compared to 8.9% in the three months ended December 31 2018.

The outlook for the Storage Solution segment remained strong for both revenue and margins for the remainder of fiscal 2021 [ph]. Revenue for the industrial segment was $90 million in the quarter, compared to $70 million in the same period last year.

The increase was due to higher volumes of iron and steel work, including revenue from a large capital project. The segment gross margin was 9.9% compared to 5.7% in the same period of fiscal 2019. For fiscal 2020, segment gross margin was positively impacted by good projects execution on both capital and repair maintenance projects.

However, as a result of the change in the business, we expect the revenue volume in the industrial segment to decrease significantly beginning in the third quarter. Now, I will briefly discuss the results for the year-to-date.

Consolidated revenue was $657 million, for the six months ended December 31, 2019 compared to $659 million in the prior fiscal year. On a segment basis, revenue decreased $48 million in oil, gas and chemical and $41 million in electrical infrastructure.

These decreases were partially offset by $54 million increase in storage solutions and a $33 million increase in industrial. Consolidated gross profit increased to $62.5 million in the current year compared to $51.3 million in the same period in the prior fiscal year. Gross margin increased to 9.5% in fiscal 2020 compared to 7.8% in fiscal 2019.

Fiscal 2020 gross margin was possibly impacted by strong project execution in storage solutions and industrial segments. In oil, gas and chemical segment, project execution was strong but the lower volume of work led to under recovery of construction overhead costs.

Gross margin in the electrical and infrastructure segment was negatively impacted by poor project execution. Consolidated SG&A expenses were $46.9 million in the first six months of fiscal 2020, compared to $43.6 million in the same period a year earlier.

The increase was primarily due to investments to support the business and as well as a bad debt challenge. Our effective tax rate for the six months ended December 31, 2019 was 2.6% compared to 23.7% for the same period a year ago.

The fiscal 2020 tax rate was impacted by second quarter events including the valuation allowance placed on certain deferred tax assets and goodwill impairment charges that were not fully deductible.

For the six months ended December 31, 2019 we produced a loss of $0.81 for fully diluted share, compared to earnings of $0.23 for fully diluted share in the six months ended December 31, 2018. Excluding the impact of a non-cash charges, we produced adjusted earnings per share of $0.41 in the first six months of fiscal 2021.

Adjusted EBITDA for the first six months of fiscal 2020 was $26.6 million or 4.1% of revenue compared to $18 million, or 2.7% of revenue in the prior year. Moving on to our balance sheet and liquidity, our financial position remained strong, with current liquidity of $276 million.

We ended the quarter with the cash balance of $110 million and borrowings of only $15 million. Availability under our credit facility is $166 million. Our capital expenditures in the quarter were $5.8 million, which is about 1.8% of revenue. Our capital expenditures were $14.5 million or 2.2% of revenue for the six months of the year.

As we previously mentioned, we're reducing our capital spending plans in the last half of the year and expect to end the year with capital expenditures of about 1.5% of annual revenue. During the quarter, we executed on the stock buyback that we announced in early November. The buyback consisted of 500,000 shares at a total cost of $9.9 million.

Given the strength of the company and our outlook on the business, we will utilize our financial resources appropriately to maintain shareholder value, including stock buybacks. Our approach of maintaining a strong balance sheet and good liquidity remains.

We intend to continue to pursue acquisitions but will do so in a manner that allows us to maintain a strong financial position. Our primary uses of cash are designed to strengthen shareholder value.

These users include, certain strategic investments related to our business improvement plan and other organic growth initiatives strategic acquisitions, capital expenditures, and share repurchases. Now let's discuss guidance.

Based on performance of electrical infrastructure segment, lower projected volumes in the industrial segments and other business priorities, the company is executing on a business improvement plan.

In connection with this improvement plan, the company anticipates a reduction in its annual operating costs of at least $12 million and a reduction of approximately $10 million in fiscal 2020 capital spending.

The company also expects to incur restructuring cost of $4 million to $6 million, primarily in the third quarter of fiscal 2020 related to the plan.

Given the changes in our business, we are updating our previous guidance, taking into account the company's positive outlook in the oil, gas and chemical, and storage solution segments, the business improvement plan in the electrical infrastructure segment and the expected revenue reduction in the industrial segment, we now expect fiscal 2020 revenue to be between $1.2 billion and $1.3 billion and to report a loss for fully diluted share of between $0.45 and $0.65.

Excluding the non-cash charges incurred in the second quarter and restructuring costs planned in the second half of the year. The company expects to report adjusted fully diluted earnings per share of between $0.70 and $0.90 for fiscal 2020. We will now open the call for questions..

Thank you [Operator Instructions] Our first question comes from the line of John Franzreb with Sidoti. Your line is open..

Good morning John and Kevin..

Good morning..

Morning..

I guess I want to start with the industrial business.

Could you just kind of clarify what your business plans are? All you getting out of just the steel side or the entire business? What are your plans there, and what kind of timing are we thinking about and exiting it?.

So our industrial segment, John is made up of several industries and markets that we work in iron and steel being the largest of that on both sides of the border in U.S. and Canada. We also have mining and mineral operations. We work with thermal vacuum chamber work we do, material handling kind of projects and grain and cement.

And so the iron and steel piece is the one that we are minimizing our operations in. Right now, we are sort of downsizing our presence there from our day to day maintenance in small project capability. We will continue to be opportunistic to look at turnarounds or larger capital projects there likely would do really in any of our businesses.

But the -- but the you know we’re expecting a pretty big reduction in the revenues because of that change and just because of what's going on in the market. But, but the iron and steel there, just to be clear in the industrial segment, the iron and steel business, depending on what was going on in that market represented anywhere from 50% to 75%.

of revenues in that segment..

Okay, and that that steel businesses like you referenced in your press release, is the -- is the business you would look to sell not the entire industrial business?.

Yes, correct. All right..

And I guess, just to stick with industrial, what would your plans be to continue to grow the business? The whole point of getting into this marketplace was diversification.

How do you continue to plan to diversify the business mix or don't you for the foreseeable future?.

No, I mean, what we -- so one of the things we like about the electrical piece, and obviously we've got some pieces that we've got a, we've got to fix. But, we think there's a lot of growth potential for us in the electrical infrastructure piece.

There's decades of capital spending requirements across North America to improve the overall power delivery segment for the country of the grid. And it's not a commodity, commodity price sensitive as some of the other things that we're into.

So whether that's being connected to rein the refining and that connection back up into the midstream markets for us, so that's an area growth for us. Another area growth for us is in the chemical market. You know, that's an area of business that we do virtually nothing in today.

So while we've got a great footprint in refining, both in turnarounds and projects, and associated storage facilities with that, we're – our work in that chemical, petrochemical market is really limited only to storage applications.

So we feel that there was a lot of opportunity for us to grow there leading with engineering content for us, and then bringing our construction operations to that. And then, one of the other things, other things we've identified is the international market.

So we talked about international market, we're looking into the Caribbean, Mexico, Latin and South America. We're experiencing a lot of pull through opportunity there for our domestic clients that are moving energy resources into those markets.

And so while we're building their facilities here in the US, well it also gives us the opportunity to build the receiving terminals in those other markets. So those are the three of the areas for us where we would see growth opportunities, and the electrical one would help us -- would help us to minimize the cyclicality of the rest of the business..

So, just to tie a ball around that.

How long is this process expected to take? The finding of new personnel to run electrical, the draw down in steel? Is this a one quarter process, six-month quarter process and what are we talking about here?.

I think both of those things will be fundamentally put in place by the end of this fiscal year, and the improvement, overall improvement in the electrical markets while we expect some, improvements through the back end of this fiscal year. We would hope within the 12 month -- a 12-month period will start to get back to expected performance levels..

Okay. And one last one and I'll get back into queue.

The Eagle project, can you give us a sense of the size and scope of the project? When do you expect it to hit the P&L initially and how long of a duration it will be?.

It's approximately, I would know the schedule completed by around 30-month project. And we don't want to give up the project sizes, but we’re the EPC contractor.

So all the engineering, the procurement, all the construction, the processes still be the marine terminalling works, all the things, the stories and all the balance of plan, all that is all within our, our purview. So you can think about the size of that versus the clients investment in sort of the 60% to 70% kind of range..

Okay. Fair enough, thanks. I’ll hop back in the queue..

Thank you..

Thank you. Our next question. comes from the line of Bill Newby with D.A. Davidson. Your line is open..

Good morning. Thanks for taking my question..

Morning, Bill..

I guess, Kevin, just the first one on the guidance.

I mean, can you help us a little bit on like what operating assumptions you are taking into account for these two businesses that are undergoing the strategic actions at the low and the high end?.

Yes, so, so first, we looked at an industrial, we did about $90 million of revenue this quarter produced some good operating income. As Sean said that the steel business is 50% to 75% of the segments. So, two thirds of that segments are going away starting in the third quarter.

So, that segment is not going to produce any measurable operating income in the last half of the year, atleast I wouldn’t expect it to. Now the electrical segment, we did $30 million of revenue this quarter, we did a similar number in the first quarter. We do have an improvement plan in place, it will take time to get your changes made.

So we're not expecting significant improvement on the top line, in the back half, I mean, the revenue should be in that 30 million to 40 million range, I would think per quarter. And then if you think about margins, we think we'll get it back to that historical range eventually. I wouldn't expect that in this fiscal year.

So you're still going to have mid-single digit margin, probably in that -- that business this year, as we implement the changes. Now, when you look at the energy segments. The Storage segment was extremely strong over $140 million of revenue. I think that'll grow some here in the last half of the year.

And the margin performance should continue to be really strong there. We've got a good backlog of projects. And when you look at the old gas and chemical segment, we noted that the project execution was strong in the quarter.

It was just the volume was low and we think that volume is going to increase in the last half on additional capital work and additional engineering work. So you know, I think we should see a decent increase in volume for oil, gas and chemical. So those are the two segments they're going to carry the operating results of the company in the last half..

Got it. I guess any, any additional color on what gives you a comfort that the volumes in oil, gas and chemical will recover here in the near term? And I guess, if there’s any help you can give us there. I think we are all looking for those volumes to recover here in the December quarter.

So I guess what gives you guys confidence you'll see it here in March or….

Yes, I think the expectation in this recent quarter was more around turnaround. And while our crews were busy, the size and scope of those turnarounds did not end up being, you know, the -- they didn't have been the type of turnarounds that lend themselves to a strong quarter like we had in the, in the third in the fourth quarter last year.

And when we think about what we expect in the back half, it's not based on turnaround improvement, it’s based upon, projects and a bit of new construction, capital projects or engineering that are -- that are either booked or very high probability being booked. So that gives us more confidence in where that increase is coming..

But the other thing to think about too, is that contractors, turnaround contractors follow their clients and so we may, one of our competitors may be saying they're having a strong turnaround session in the fall or the spring.

And that's because the clients that they normally do business with on a consistent basis are – happen to be in that cycle at that time.

And that the owners that we do business for may be off cycle, so we've had this year is a little bit of an off cycle year for our clients, lower levels of heavy turnarounds and kind of smaller scope mechanical turnarounds.

And we expect that to flip for us probably not in the fall, I'm sorry, probably not in the spring but as you move into the fall of this calendar year, we expect those that turnaround next to flip towards more towards a client that we do consistent business with..

Yes. And the engineering work I referenced is, a lot that's really gas value chain which is a growth area we've talked about..

Got it. That's helpful. And then just another one on electrical. I mean, it sounds like there's one specific T&D project that's causing a lot of headaches there.

I mean, any color on how much you guys have left on that project?.

I think we're about 70% complete. Yes..

Okay, thank you. And just one quick kind of housekeeping, the $12 million in operating cost reductions.

Any, I mean, it sounds -- I mean, it's all going to be obviously in electrical and industrial any, any color on how you expect that to be split as we kind of think about modeling it out?.

Split between like line items in the income statement or segment?.

No, just in terms of I mean how much of the cost are you taking out of electrical versus how much of the cost will be coming out of industrial? Just how -- the any kind of howit will be allocated between the two segments?.

I think more of it is coming out of the industrial piece. But there are, probably 60%, 70% out of industrial. But for both businesses there's also support related costs that are included in that amount and support the whole business because that’s part of a larger subsidiary that -- the volume for that larger subsidiary is decreasing.

So they've got to rightsize their overall structure, and that's already been going on..

Got it. I got a couple more, but I’ll jump back in queue for now. Thanks guys..

Thank you..

Thank you. [Operator Instructions] We have a follow up question from the line of John Franzreb. Your line is open..

Yes, just maybe continue a little bit on the electrical. John, when you look at the bookings, you've been working to kind of right size that business make it more profitable. You've announced sweeping changes on the managerial and mid-level managerial levels.

Could you just talk about what you feel that the opportunities that you've been missing out on that warrants such changes? I mean, what type of business have you not gotten your fair share of -- some sort of colors, what you think this unit has missed?.

Some of the things is going on, there's been some structural changes in, in that markets. We've talked forever about being too centered on the Northeast, that we're too dependent on two few clients, and it’s necessary for us to grow that business, that thesis still exists, and it's still something we need to do.

And there's just but there's been some changes there on how are those clients particularly that are associated with this one, this one unit within that business, they're buying their, their work. So there used to be a lot of more reimbursable kind of projects. They were more call out kind of maintenance.

They were not bidding as many in there as possible. And so the people within that business unit, not necessarily used to operate in that fashion.

And as that market changed over it, it changed the dynamics of how we chase work, how we win work, how we execute work, how we estimated and so those are things that we've got to catch up on and we've got to fix within those businesses.

So, and there's been a lot of money spent over the last few years on storm hardenings and things that were done associated with Hurricane Sandy.

A a lot of that work has been identified, has been completed, and so now is as those utilities move back into store for more of a normal cadence and repair cycle, we got to get ourselves aligned with where they're spending their dollars.

So yes, those are kind of the issues and so we've kind of changes our, the way we sell ourselves there, the way we market our services into those regions. And so we got to make sure that we've got the right folks in place to be able to market and sell the business.

So it's more, it's going to be more aggressive selling by the organization then as opposed to the client fixes an appointment and gives you a call..

So, so to expand geographically, are you thinking that, we need some sort of -- outside the Northeast, some nearby adjacent geography is the best way to go? Or do you look further out for the opportunities that might be in the I don’t know southwest for just to throw something out there?.

Right..

How does that work?.

So I think for the -- the purposes of expansion, we're going to be looking for acquisitions to do that.

If you're moving or you're moving organically, especially in this business, the ability to bring and know the local labor market to bring the capabilities into know the clients, a kind of one of the things that stinging us on the transmission distribution project, we talked about where we've had some charges on.

From an acquisition standpoint, you're buying into, you're buying into that client resources as client contacts, the labor resources, the supervision, into companies that are operating in regions. So it's probably less -- it's less important on an acquisition standpoint for that acquired business to be adjacent to our existing operations.

Because you're really that -- you're buying that know how, you’re buying that knowledge of the clients and the region, and as opposed to trying to put your own folks in there..

Okay. Okay, fair enough. And one last question.

Did I hear correctly that you used about half of your share repurchase authorization?.

Our authorization is is limited to $30 million a year, calendar year. So, now don’t expect us to do that much, but we're in a position where we could do a significant buyback and that's what we choose to do..

Alright guys, thanks for taking my questions..

Thank you..

Thank you. [Operator Instructions] Our next question comes from the line of Noelle Dilts with Stifel. Your line is open..

Hi, guys, thanks. Just one really quick question. On T&D project that’s 70% complete. Are you just booking the remainder of that revenue at no margin at this point, or a lower margin? Just curious how the rest of that plays out..

I would expect to be booked at a zero margin assuming the forecast we have in there is correct..

Okay, perfect. Thanks so much..

Thank you..

Thank you. I'm not showing any further questions. I will now like to turn the call over to John Hewitt for closing remarks..

Well, thank you for visiting with us today. I want to remind everybody in the wintery driving conditions that we've got around the country of late, but please keep safe and be mindful the slippery roads. And try and remind everybody that our business is strong. Our storage opportunities are very deep.

Our strategic positioning is built for growth, and we will fulfill our purpose. So, thank you again for joining us today and look forward to talking to you on future calls..

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect. Everyone have a wonderful day..