Houston Wire & Cable Management Discusses Q1 2013 Results - Earnings Call Transcript

May. 9.13 | About: Houston Wire (HWCC)

Houston Wire & Cable (NASDAQ:HWCC)

Q1 2013 Earnings Call

May 09, 2013 11:00 am ET

Executives

James L. Pokluda - Chief Executive Officer, President and Director

Nicol G. Graham - Chief Financial Officer, Chief Accounting Officer, Vice President, Secretary and Treasurer

Analysts

Joshua Wilson

Luke L. Junk - Robert W. Baird & Co. Incorporated, Research Division

Ryan Merkel - William Blair & Company L.L.C., Research Division

William J. Dezellem - Tieton Capital Management, LLC

Robert J. Kelly - Sidoti & Company, LLC

Operator

Ladies and gentlemen, thank you for standing by. Welcome to Houston Wire & Cable Company's First Quarter 2013 Earnings Conference Call my name is Nova, and I will be your operator for today. Joining us on the call today are Jim Pokluda, President and Chief Executive Officer; and Nic Graham, Vice President and Chief Financial Officer. Today's call is being recorded for replay purposes. [Operator Instructions] Comments during today's call may include forward-looking statements. Any such statements are based on assumptions that the company believes are reasonable but subject to risk factors that are summarized in the press release and SEC filings. Forward-looking statements are not guarantees, and actual results could differ materially from what is indicated in such statements. Any forward-looking statements speaks only as of the date of this call, and the company undertakes no obligation to publicly update such statements. If you did not receive a copy of the earnings press release that was distributed earlier this morning, a copy can be found under the Investor Relations page of the company's website at www.houwire.com.

At this time, I would like to turn the call over to Jim Pokluda, President and Chief Executive Officer. Please begin when you're ready, sir.

James L. Pokluda

Thank you, Nova. Good morning, everyone, and thank you for joining us on our call this morning. I'll begin today's call with a brief overview of our first quarter performance and then I'll turn the call over to Nic, who will discuss our financial results in greater detail.

During the first quarter, inconsistent market conditions and varying levels of regional demand generated sales, which were down approximately 0.2% versus the prior year. Weakness in certain geographic regions was offset by strong demand in upstream, midstream and downstream oil and gas markets and increased industrial demand in the Gulf Coast region. Normalizing for metals in one less business day during the quarter, sales grew approximately 4% over the prior year period. Year-over-year transactional activity increased approximately 1.3%, MRO sales were up approximately 3% and project sales decreased approximately 4%.

First quarter MRO sales increases were primarily the result of continued economic recovery and our ongoing investments in new products and sales and marketing resources. Excluding oil -- excluding offshore drilling markets that require the use of our high carbon steel mechanical wire and related apparatus, certain geographic regions, including the South, Southeast and Southwest performed well and remained most positively influenced by steady repair and replacement demand created by robust oil and gas markets.

First quarter project activity, similar to the past several quarters, was led by strong demand in hydrocarbon extraction, transportation infrastructure and refining. These markets performed well throughout the quarter and we believe were minimally affected by seasonality typically experienced in the first quarter of the year.

Although our project pipeline continued to build throughout the first quarter, excluding oil and gas markets, seasonal demand trends were present in certain end markets and geographies.

Wins in infrastructure, utility power generation and industrials varied by region with Midwestern projects mostly aligned towards power generation and industrial manufacturing and western and southeastern region project activity most active in fossil and alternative fuel power generation.

Moving further into 2013. Our book-to-bill ratio was positive, both sequentially versus the fourth quarter of 2012 and year-over-year. Customer satisfaction and operational excellence initiatives encompassing on-time performance and order accuracy remained at all-time highs. Although our overall market outlook continues to be somewhat guarded due to the nation's varying degrees of economic performance, channel review and continued improvement in end market strength indicate an opportunity for growth throughout the balance of the year. As in the past, our practice of prudent expense in working capital management will remain the top priority, as will the importance of maintaining our strong balance sheet which, in the most recent quarter, allowed us to increase our dividend 22.2% to $0.11 per share.

I will now turn the call over to Nic Graham, our Vice President and CFO, for a more detailed analysis of our financial results. Nic?

Nicol G. Graham

Thanks, Jim, and good morning, ladies and gentlemen. Our first quarter results were in line with the estimates given on our 2012 year-end call where we stated, expect the first quarter of 2013 to be flat to slightly down over the first quarter of 2012. Accordingly, I described the quarter as solid given current market conditions. As sales of $94.3 million were down slightly from Q1 2012 and as Jim mentioned, up approximately 4%, adjusting for metals and business days.

Margins increased by 30 basis points to 22.7%, primarily as the sales mix changed to higher-margin products and as MRO sales increased. The marketplace remains extremely competitive and pricing continues to be volatile.

Operating expenses increased on a year-over-year basis as the personnel additions mainly in sales and marketing roles, which started in the second quarter of 2012 was the primary driver of the 4.6% increase to $15 million. Operating margin at 6.8% fell 40 basis points from the prior year period's 7.2%, principally due to the higher level of salaries which, coupled with the minimal change in sales, decreased leverage.

Interest expense was essentially flat with the comparable quarter. Our cost of borrowing was 1.9%, down from the prior year period's 2.1%. Most of this decrease was from the impact of a lower LIBOR interest spread and our ability to increase the percentage of outstanding debt that was held in LIBOR debt.

Net income at $3.8 million was 3.8% lower than the level achieved in the comparable period.

Turning to the balance sheet. Further rationalization of our working capital investment resulted in a decrease of $7.6 million or 6% from year-end 2012 levels. Part of this was due to receivables, which decreased $6.7 million as cash collections remain strong and as we collected vendor rebates earned for 2012 activity.

Customer aging and day sales outstanding metrics remain within acceptable historical levels. Other component parts of the working capital change included inventory, which fell by $2.9 million as the rebalancing of the regional profiles continued to ensure adequate availability to satisfy local demand. Accrued liabilities also fell by $6.3 million as year-end accruals, including sales incentives, commissions, property taxes, were paid during the first quarter.

Capital expenditures during the quarter were $0.3 million as investments in additional warehouse and computer equipment we're made up from the $0.1 million level in 2012.

The results of operations and the working capital reduction resulted in a record first quarter operating cash flow of $12 million. These cash funds, after financing the CapEx spend and the first quarter dividend, allowed us to pay our debt down by $10.6 million or 18.1% to $48 million. This is the lowest quarter level since December 2011.

Accordingly, the debt-to-equity ratio fell to 43% and when you include the bank overdraft, to 46.4%. These are also the lowest ratios since Q1 2010.

Interest coverage on our debt on a trailing 12-month basis was 23x. Availability under our $100 million credit facility increased from $41.4 million at December 2012 to $51.4 million at March 2013, which provides more than adequate capacity for our current needs. We also remain in full compliance with the covenants of a loan security agreement, which expires in September 2016.

We're also very pleased to announce to our shareholders the 22.2% increase of the dividend from $0.09 per share to $0.11 per share for the second quarter.

That concludes the prepared remarks. At this time, I'll turn the call back over to the operator. Nova?

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from the line of Sam Darkatsh.

Joshua Wilson

This is Josh filling in for Sam. First question, a bit of a housekeeping item. What are your expectations for interest expense and tax rate for the year?

Nicol G. Graham

Josh, I think interest rate -- interest will decrease. I think rates are going to be fairly low for the balance of the year. And as far as tax rates, we're generally a full rate taxpayer, so I'd say somewhere in the region of 38.4% to 38.7%, nothing really unusual for the balance of the year.

Joshua Wilson

Okay. And then is there any color or directional commentary you'd like to give us on the second quarter sales on EPS?

James L. Pokluda

Good morning, Josh, this is Jim. It's still really pretty -- we're still quite new into the quarter. I think the story probably begins in January. January was a solid month for us and I think I commented earlier on a prior call, we didn't experience the seasonality that we typically see. February was quite a bit softer. We did begin to see some seasonality and then that kind of lingered into the first quarter of March -- first portion of March. April was solid. April was a solid quarter and May, we're still quite new into May, too soon to call it, I'm afraid, Josh. I would say overall, though, we feel good about our end markets. Utility is good, we're not building on coal plants as we used to but we are building biomass plants, hydroelectric facilities, wind and solar and we participate in all those markets and we have the products for all those markets. Oil and gas is good, quite good and expected to remain solid for the next several years. And I think the net result of some of the things I've just described will continue to be a slow advancement throughout the year and as such, our view is positive for the balance of the year.

Joshua Wilson

So do you think this past quarter, you were down slightly in both the top and bottom line? Do you think you can be up in Q2 year-over-year?

James L. Pokluda

The data we've seen so far, the trend data indicates that Q2 will improve over Q1.

Joshua Wilson

But what about versus 2Q last year? Seasonally, it should be stronger anyway, right?

James L. Pokluda

It should, yes, it's really just too soon to call. So beyond that, I just don't think I can add any more color.

Joshua Wilson

Okay. And then on the salaries and commissions expense, can you talk about what your hiring plans look like for the balance of the year and what sort of numbers we might see there?

James L. Pokluda

Certainly. Clearly, we have continued to play often. We've launched new products. You see the manifestation of that to some extent in the balance sheet given the increased inventory investment, although it is becoming a bit more highly honed given regional inventory burn. We have allocated resources, strategic marketing resources towards the further development of those new products and we slowly scaled in additional sales resources in markets that are beginning to show signs of recovery. I think that we're done pretty much for now, Josh. We've accomplished what we intended to accomplish as we began undertaking this initiative about this time last year. So moving forward from here, I would expect a slight decrease towards the allocation of those expenses.

Operator

Our next question comes from the line of Luke Junk from Robert Baird.

Luke L. Junk - Robert W. Baird & Co. Incorporated, Research Division

So first question for you, just building on the comments you had in some of the new products that you guys added here recently. I was just wondering if you could maybe give us a little more detail on some of the areas where you specifically added SKUs for oil and gas and aluminum products? And then maybe if you could also talk about maybe markets or customers where you've had early success with the product.

James L. Pokluda

Sure. The oil and gas products are used primarily in land-based drilling applications. They do touch offshore markets intermittingly, but the lion's share that's been -- goes out into the oilfield, land base oilfields. These cables are primarily used to deliver power to the apparatus used to extract the oil, other high-performance cables and they -- the market opportunity for these items really follows the shale plays. So we've had a lot of success out in the West Texas and South Texas and certainly in the Dakotas, with respect to the Bakken play. The aluminum items are a somewhat mixed bag of SKUs. They are used to support the primary and secondary distribution of power and to some extent, commercial applications, very limited residential. And then at times, we are also participating in applications that formally use copper. The conductivity of aluminum, as I'm sure you know, is less than copper but even when one accounts for the increased number -- amount of material to bring into the net equivalent of copper, the expense savings is still compelling. So we are also touching what I will call semi traditional industrial markets with SKU shift towards aluminum conductors.

Luke L. Junk - Robert W. Baird & Co. Incorporated, Research Division

Okay, that's very, very helpful. And then next question for me would be, I guess, earlier this month, you guys announced the opening of a new distribution center in Minneapolis. And I'm just wondering if you can expand on the rationale for the new DC there. And then how we should think about SG&A going forward? Should we expect a small step up in cost to support that facility?

James L. Pokluda

Sure. Yes, we're excited about that location. I guess, the primary reason -- there are 2 reasons. The general demand requirements for the Minneapolis-Saint Paul continues to grow and touching that region out of Chicago wasn't as efficient as we had liked. And then in addition to that, and quite important, is the extended reach we now have into the shale plays in the area. So we can touch the shale markets with greater efficiency and save at least a day. That well supports our value proposition of value-ad service. This distribution center for us is one that was well rationalized. We visited with a number of customers and given our high degree of experience in oil and gas markets, we know how the profile the SKUs. So we're very early into this initiative. It's been successful though and as the demand continues to grow, I believe so to will our sales.

Nicol G. Graham

Luke, this is Nic. Let me add a couple of color commentary on the expenses. This distribution facility is in a third-party logistics warehouse, similar to what we operate in Denver and San Francisco. So it will just be a distribution point, there will be no sales folks actually attached physically at that branch. So the type of normal SG&A that you see at a full distribution facility like Baton Rouge or Tampa or Seattle, we won't experience there. We'll just experience contract charges for cutting and shipping. So since they're very early in the game, but there won't be a whole lot of SG&A associated with that distribution point.

Luke L. Junk - Robert W. Baird & Co. Incorporated, Research Division

Okay, that's a good insight, Nic. And then last question for me. Jim, you had mentioned your book-to-bill being positive both if we look versus the prior year or versus the fourth quarter. I wonder if you could just comment on backlog and what you're seeing right now in terms of your smaller projects versus larger projects and just in general, customers' willingness to commit to your capital dollars in the current environment?

James L. Pokluda

Yes absolutely. Of course, the megaproject experience that we had prior is not contemplated in that book-to-bill ratio. However, the fact that it is positive, I think, is material. There are 2 general areas of project -- 3 general areas of project distribution, the ones you probably heard me mention quite often, the -- well, actually now, it's upstream, midstream and downstream oil and gas projects. The upstream and midstream tend to be smaller projects as in the order of, say, $300,000 plus and are usually associated with some sort of extraction, compression and transportation of the hydrocarbon. As you move further down the cycle there and get into refining, the project gets a little bit larger because they're associated with larger scale work, fractionator work, coker work, more elaborate, more involved. And then in the very early stages today and I forecast that it'd continue for quite some time, is the larger order work, the larger scale work, work that would involve NGL work, liquid natural gas work, gas to liquid work and ethane conversion into ethylene. These projects are quite large. They are still primarily in the early stages of development, given the somewhat rigorous, I would describe, licensing and approval process. But given the abundance of the feed stock availability and the very competitive price for both the dry gas and the wet gas, I think most experts would agree that the outlook for this higher order work is good. On the utility side of our business, which is also -- are quite active, coal work is not what it was a few years ago. Surprisingly though, some of the formally discarded opportunities with high sulfer coal, say, in the Midwest part of our country, are becoming a bit more attractive now given the very practical alternative to a gasless authorization use to take the sulfur out at coal. So although coal was down last year, most people estimate -- coal spend was down about 10% last year. It is forecasted to grow this year primarily because of the ways to clean it with these scrubber devices. Devices that we have quite a good history with, construction history with. Alternative fuel as I mentioned before, hydro, biomass, geothermal, wind and, of course, gas is right in our wheelhouse. We know how to manage those jobs, they have quite a pedigree and they remain a meaningful component of our project opportunity.

Operator

Our next question comes from the line of Ryan Merkel of William Blair.

Ryan Merkel - William Blair & Company L.L.C., Research Division

So I wanted to start off with some questions regarding sources of growth. Do you have the growth rates for the oil and gas cables and maybe the aluminum cables in the quarter?

James L. Pokluda

We did not have a history of disclosing growth rates for our new initiatives, Ryan, really simply because strategically, we -- I suppose we're uncomfortable with that as it's really not our desire to overly divulge what we consider to be confidential information. With respect to oil and gas, that's quite a difficult question because the scope and scale of work varies widely. I would tell you that it is certainly double-digits and if you were to look at the smaller scale projects, say, the projects in the $300,000 range, I would tell you that they are up 100% year-over-year. Very meaningful amount, Ryan. You have to, I think, to play fair, though. I'd have to tell you that they're coming off a smaller base but nonetheless, the growth has been substantial.

Ryan Merkel - William Blair & Company L.L.C., Research Division

Okay. And what about taking the question a little bit broader, the 2% growth in the quarter X the metals. It sounded like that was driven by oil and gas but what about power generation, petrochemical in some of the other industrial markets, just -- can you give a sense of growth rates, which were growing and which were not?

James L. Pokluda

The alternative fuel growth rates were very good. We wrote a couple of nice biomass jobs. We also booked a couple of nice geometric -- geothermal jobs that were the primary influencer of our positive book-to-bill ratio, so they haven't build out yet. The Midwest had a couple of combined cycles, pieces of work and I think we had some tailings left over from our solar job.

Ryan Merkel - William Blair & Company L.L.C., Research Division

Okay. And then I wanted to ask about your inventories. It looks like inventory was down a little bit from December and I would think you're entering the seasonally stronger period. Can you just speak to the inventory levels? How do you feel about it here? And just maybe comment on why they're down heading into the stronger period?

James L. Pokluda

Sure. Last year, we did bring the inventories up towards the end of the year and that was intentional and it was primarily for 2 reasons. One, to make sure that we're appropriately profiled in our new products and then also to make sure that we had the right SKU availability for the oil and gas markets in Houston. So what we saw was a fairly substantial increase in inventory allocation in the Houston market and we had to make a judgment call on that. We had the option, of course, to bring material in from our branches, which we elected not to do, given the freight expense and the fact that some of the material shipped wouldn't arrive in bulk grills [ph]. Although we recognize the downside of a increase in inventory at year end, we knew that, that would be temporary. Now then, as we move to through the first quarter, the inventory burn in the regional markets that were most largely affected by compromised economic recovery, that inventory burn was not replaced. So what we've kind of seen here in the first quarter is a rebalancing. I would expect a slight build, I'll even tell you, in the order of, say, $2 million to $3 million in the second quarter. I wouldn't expect it to be much more beyond that with -- I'll give myself one out on that one, Ryan, if substantial breadth of sales do present, we're going to make sure that we profile the inventory to support that demand.

Ryan Merkel - William Blair & Company L.L.C., Research Division

Okay. And the last one for me. I was hoping you could comment on the competitive market dynamics, and maybe tie that into gross margins, maybe a 2-part question, because year-over-year, your margins were up but I think that was due to mix. Now I'm just curious, we're selling margins outside of mix, then flattish? Or how did that look and how do you see that trending?

James L. Pokluda

Yes. The margins in the fourth quarter of last year were negatively affected by the large mooring cables orders that we had, the steel wire rope in the steel wire rope end markets. That low-margin business did not transact in the first quarter. And I think you'll note that MRO business was up and project business was down. The MRO business is slightly more profitable for us than project business. It's kind of a reality we have to deal with, the cyclicality here of how projects fold into the quarter or not. And then we also made some improvements in the steel wire rope end of the business with respect to profitability and a further sort of focus on niche-y items that are more lucrative.

Ryan Merkel - William Blair & Company L.L.C., Research Division

Okay. And then -- so year-over-year, there was no change outside of mix on the margin. It's flat, the competitive dynamic is tough but not getting tougher?

James L. Pokluda

That's correct. That's correct.

Operator

[Operator Instructions] Our next question comes from the line of Bill Dezellem from Tieton Capital Management.

William J. Dezellem - Tieton Capital Management, LLC

I'd like to ask more about the project business and in the light or spirit of the comment, I believe, that you made on the first quarter call, which was that you do believe that 2013 revenue will be up from 2012 revenue. And with the first quarter starting flat and the second quarter, I think you had mentioned is still a question mark whether it will be up or not. Would you walk us through what you're seeing in the remainder of the year to accomplish that expectation of upsales? And maybe it's the $300,000 smaller projects being up so much, maybe there's something else going on? And I'm hoping you can give us a little bit more window into your world without divulging your competitive information that you don't want to share.

James L. Pokluda

Absolutely, Bill. I think we need to -- in order to answer your question, I'll have to present a number of different items. If we step back and look at what's going on in our end-use markets, I think most would agree and I think the economic data would support that the growth rates are still improving on a year-over-year basis. The rate of acceleration is declining but is still growing. We're still above the line and that bodes well for our business. Durable goods, nondurable goods, industrial production, plant utilization is somewhat flat. But the data I review continues to indicate that industrial production will grow throughout the balance of this year and the estimate is around 3%, that's good for us. Oil and gas markets are phenomenally strong and there is no indication that they will not remain that way for some time. Feedstocks are inexpensive, technology shifts are occurring to accommodate those feedstocks, those new feedstocks and the expense allocated towards that spend is something from which we will benefit. So I think that continues its slow growth. Underperforming regions are starting to get some traction. I think it's been a while, I think you'll note, it's been a while since I've mentioned that the Southeast was improving, yet it is. And I mentioned that on the call today. So the Southeast market had formally been flat to slightly negative has shown some traction. Mechanical wire and cable is still an area that I am not pleased with. At the same time, I'll say our new management, new sales talent, focus on margin enhancement, expense reduction and introduction of higher profit services should favorably benefit our growth and profitability. I am a realist, however, Bill. And I acknowledge that other areas of the country, the West Coast, for example, parts of the Mid Southeast, are still choppy and I have to be realistic that given that state of affairs, the growth could be compromised. I think all in, however, the net result is a positive end result.

William J. Dezellem - Tieton Capital Management, LLC

That is helpful. And then switching to an entirely different topic. You had mentioned that you're not pleased with mechanical business and that was an acquisition that was made a few years ago. Are you looking at it now and feeling as though some of the analysis or thoughts that you had at that time are different from the realities that you're experiencing? Or maybe you could fill in what I view as a little bit of a gap between the choice to acquire and not being pleased with the business today.

James L. Pokluda

We sure had bad timing on that acquisition, Bill. I'm a believer in the fundamentals of the business. The validity, the soundness of the end markets, the value add, the value proposition, the services we provide to those markets, I'm still very much a believer in all of the above. More than anything, we were the unfortunate recipient of bad timing. We bought that business, both of those businesses in June of 2010 and that's the same time that we had the drilling moratorium present. A very large percentage of the revenues from these companies is a derivative activity in the offshore markets. Now I know that the rig count is slowly improving and certainly, that permits are up. At the same time, a lot of the drillers are not executing on those permits. And as an example, one of our largest customers pre-moratorium had 17 rigs out there. Now they have 3. And by year end, they hope to have another 1 or 2. So is that good news for us? Yes, I guess so. It's going in the right direction. Is it as fast as we would like? Of course not. So I think that if this hiatus on deepwater drilling, Gulf of Mexico drilling had not occurred, we wouldn't be having this conversation. Nonetheless, it's a reality that we have to deal with and I'm proud of the fact that we've had the discipline to keep our expenses in line, had the foresight to begin to shift SKUs to more land-based drilling operations and we still played what I would call the strategic offense because our interest in recruiting and our personal development programs to educate and drive and bring in new salespeople remain very much in tact. And we'll receive our benefits from that. Just never as fast as one would like.

William J. Dezellem - Tieton Capital Management, LLC

And then finally, in that same vein, do you feel as though the opportunity for the mechanical business is greater today under the Houston Wire ownership than it was even pre-moratorium under the prior ownership? Meaning that you have your additional distribution locations, you are thinking about additional areas where you can take this business or am I kind of jumping too far ahead here in my thought process?

James L. Pokluda

Not at all, Bill. There's no question that they're better positioned now because of our ownership. We have complementary end markets, we are now in the ability to -- have the ability to share both inside and outside sales of business development resources, we're on a common ERP platform, which has been driving expense reduction and better optimization of inventory in working capital. It's quite a nice luxury to have all of our distribution centers available for them, to them, as they find a new customer. We're able to use some of our senior management to help guide them through strategic business decisions and investments in the future. So at this point, I'm repeating myself, I wouldn't second guess the deal. I think that the deal has legs and they're better positioned now under our ownership moving forward.

Operator

Our final question comes from the line of Bob Kelly from Sidoti.

Robert J. Kelly - Sidoti & Company, LLC

A question on industrial MRO. You're starting to feel a little bit of life there. What do you attribute to some of the improvement we've seen over the past couple of quarters on the industrial MRO side?

James L. Pokluda

This is Jim. The markets that have been underperforming, as I mentioned before, the Southeast, are helping to carry a little bit more of the load. The new products that we've introduced are also applicable for industrial MRO spend, so that's been a nice accelerant to the business. Our strategic decision to bring the inventory up in appropriate demand-present markets has also favored well, and we've also -- you've seen it on the financial statements, we've invested in sales and marketing resources to allow for further penetration into our account base. So as you know, it's rarely just one item that gets you to the finish line, there's a lot of forethought, strategic thinking and planning that gets you there a little bit of time. And it's always nice to have a market that's willing to participate. And it's participating okay, we want more. At some point, we'll get back to where we'd like to be. Things though, I really do believe, are slowly heading forward in the right direction.

Robert J. Kelly - Sidoti & Company, LLC

Okay, great, that's helpful. And as far as the new project opportunities, you gave us some nice color around the different sizes of the projects coming out. Are they all good to go, funded, permitted, the ones that you've won, or the ones that are coming to bid? Can you talk about is there any risk that those projects don't move forward?

James L. Pokluda

The only area where people discuss risks are the very large fractionator jobs, the gas to liquid jobs, the work that the CapEx is in the several billion dollar range, okay? Those jobs have to be approved. Some are and you see the same data I do, so I'm sure you know who those jobs -- where those jobs are and what the scope of work entails. But there is some speculation with respect to the extent to which the others will come to fruition. I'll tell you this though, people are in the habit of spending $150 million, for example, on the job that I just most recently reviewed on a feed for an engineering design. They don't think there will be a way to get that to the finish line. And also, a lot of this work and I'm talking about work that entails several billions of dollars, involves conversions, existing facilities. Facilities that formally took liquid gas feedstocks from offshore and converted them on our ground. Those facilities are now in the process of being converted to do the opposite, to liquefy and send it offshore. There's a lot of existing infrastructure in place that's quite leverage-able, so there's a lot of eyes on these opportunities. With respect to the other projects, the smaller scale projects, I haven't seen anything or heard anything towards what you've described. And when it comes to electrical power, we need the power. We have an aging power fleet. We have an abundance of gas, we have technologies that use alternative fuel sources. The data clearly indicates that power demand will continue to grow, certainly will grow coincident with industrial production. So I hope that helps answer your question.

Robert J. Kelly - Sidoti & Company, LLC

Yes, it does. One final one. As far as the bigger projects and all the activity in the Gulf as far as oil and gas exploration and some of the conversions that you talked about. Is competition there tougher? Is everyone kind of flocking to those jobs? It seems like that's one source of growth in your universe where you're not seeing it all across the country.

James L. Pokluda

Bob, it is always really competitive. I mean, even when it's good, it's competitive. So there's no question that in this very prolific, high-profile oil and gas market, a lot of eyes are on these projects. Let's look at the data. This is our best market. This is where we began our competition, this is where we have the most inventory, this is where we have the most sales and marketing tenure. We excel in this market and we have a very good share of the opportunity. The good thing about this work is that when it happens, it happens fast. And we have a very large inventory and our largest distribution center with 99% plus on time performance and accuracy that excels with that type of customer demand. This is where we are really good. So sure, it's competitive but that's just the same sort of operating environment we've always had. We feel good that -- and confident that we are well positioned to benefit from this petrochemical refining expansion.

Operator

And I'm showing no further questions at this time. Mr. Pokluda, I would like to turn the conference back to you for closing remarks.

James L. Pokluda

Thank you, Nova. And thanks again to our valued team members for their continued hard work and dedication to the company. To our shareholders, we extend a special thanks as well. We appreciate you joining us on our call today and look forward to success in the period ahead. Good day, everyone.

Operator

Ladies and gentlemen, this concludes today's conference. As a reminder, this conference was recorded and you may listen to the replay of this conference starting today after 2:00 p.m. Eastern Time by dialing (800) 585-8367 or (855) 859-2056 or (404) 537-3406. Thank you for your participation and have a wonderful day. You may now disconnect.

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