Good day, and thank you for standing by, and welcome to the Matrix Service Company conference call to discuss results for the second quarter fiscal 2023. At this time, all participants are in a listen-only mode. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kellie Smythe, Senior Director of Investor Relations. Please go ahead.

Thank you, Justin. Good morning, and welcome to Matrix Service Company's second quarter fiscal 2023 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 referring to during the webcast today can be found under Events in presentation on the Investor Relations section of matrixservicecompany.com. Before we begin, please let me remind you that on today's call, we 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 discussed in our most recent annual report on Form 10-K and in subsequent filings made by the company with the SEC. To the extent we utilize non-GAAP measures, reconciliations will be provided in various press releases, periodic SEC filings and on our website. I will now turn the call over to John Hewitt, President and CEO of Matrix Service Company.

Thank you, Kellie, and good morning, everyone, and thank you for joining us. I'd like to open today's call with a reminder that we are all accountable for safety. Responsibility for the safety of ourselves and each other does not stop when we work. We carry that responsibility into our personal lives as well. This personal safety responsibility is about accountability, communication and training, or short ACT. We use this acronym to focus our leadership and drive a culture of safety across the organization. It reminds us to be accountable to ourselves and each other and live up to the leadership expectations we each carry. It says we must communicate directly with purpose, the expectations and risk to execute better, and it reminds us that training improves outcomes, skills and leadership. Our road to zero injuries never ends at work or at home, and each of us have a personal role to play in that journey. Now for our business update. As we have discussed on previous calls, some projects that we took into backlog during the pandemic were lower in overall margins and were affected by the operating dynamics over the last several years. As noted previously, we have one of these midsized legacy projects left in the portfolio, which we are in the midst of completing. This project at a midstream gas processing facility, which is in the Process and Industrial segment, was awarded in calendar 2021. Due to breakdown and commercial negotiations concerning the extensive scope changes that impacted our ability to progress the project work according to forecast as well as the impact of global supply chain issues and inflation, we have taken a charge of $9.6 million in the quarter related to the forecasted outcome. The project is expected to be mechanically complete in the fourth quarter of this fiscal year. We continue to manage our forecasted costs to complete and work with our clients to negotiate a reasonable outcome. This project aside, we continue to see strong momentum, driven by the recovery in our end markets, our focused business development approach, a streamlined organization and our strong brand across the operating segments. In addition, our strong execution performance continues to create repeat business with several major energy and utility clients. Our momentum is clearly reflected by the ongoing increase in project awards that I spoke about on our last call. This trend continued into our second fiscal quarter, with total awards of $319 million. This was our highest award total since the first fiscal quarter of 2020. Second quarter awards resulted in a consolidated book-to-bill of 1.6, and we had a book-to-bill of 1.3 or greater in each of our segments. Year-to-date, we have received project awards totaling $553 million and achieved a book-to-bill of 1.0 or greater in each of our segments and a consolidated book-to-bill of 1.4. Bidding activity remained robust across all segments, and we're confident the strong award cycle will continue for the balance of the year. In Storage and Terminal Solutions, where we were seeing the largest individual opportunities, our second quarter book-to-bill was 1.8, on awards of $115 million. Included in these awards is another large ethane storage project, which is in addition to the enterprise products award we recently announced. In our Utility and Power Infrastructure segment, our book-to-bill was 1.9, on awards of $98 million, including an upgrade project for an existing LNG peak shaving facility. And finally, in Process and Industrial Facilities, our book-to-bill was 1.3, on awards of $105 million, which included a new fixed maintenance contract and additional spring turnaround for our large refiner and a scope expansion of a previously awarded renewable fuels project. At the end of the quarter, project backlog was $740 million, a 26% increase from the start of the fiscal year and backlog up across each of our segments. Our capital projects opportunity pipeline, which is comprised of projects greater than $5 million, remains strong and includes $5.5 billion worth of quality opportunities. This pipeline does not include our normal day-to-day and recurring maintenance activities. Capital projects pipeline value can fluctuate from quarter-to-quarter given award progression, opportunity changes and our continuous evaluation of project quality. We expect the pipeline to remain healthy for the foreseeable future. The vast majority of our opportunities are in clean energy and energy transition projects, in addition to the broader shift that is occurring in the energy markets. Client spending decisions are being driven by concerns about energy security globally, aging infrastructure and energy reliability domestically. This is an exciting time for the company as we extend our expertise on the projects that support the development of the infrastructure needed to enable the transition to a lower carbon energy mix and energy security. In fact, about 70% of the projects in our pipeline support this transition with traditional energy, industrial and chemical projects making up the balance. Over the years, Matrix brands have been synonymous with best-in-class storage solutions. Building storage tanks has been an important driver of our revenue. What's well known to some investors is that our storage expertise extends far beyond the traditional flatline storage tanks used to store crude oil. The storage projects we are working on today are comprised of complex single and double-wall cryogenic storage tanks. As an example, you may have seen a recent announcement that we were awarded the Greenfield engineering, procurement and construction of a 600,000-barrel cryogenic ethane storage tank for enterprise products along the Texas Gulf Coast. We are fielding a growing number of downstream project opportunities, including those for both ethane and ethylene. These types of projects require a high degree of technical expertise and experience Matrix can offer. These specialty vessels, as we call them, are used for a variety of applications, including LNG, hydrogen, ammonia, ethane and other NGLs. In many applications, the storage tank is a critical construction path for an overall terminal project, thus giving us a competitive advantage to provide a complete facility to our energy clients. With that said, before I hand the call over to Kevin to discuss our operating results for the quarter, I want to emphasize that the momentum in our business is not yet reflected in our operating results, nor did we expect that it would be. We expect that the larger projects will positively impact our results starting in our fourth fiscal quarter. I'd like to express my gratitude to our shareholders and their patience they have shown as we've worked hard to optimize and protect our business following a rapid deterioration of our end markets during the first two years of the pandemic. We are seeing positive trends in our business as we win projects, build backlog and execute with our transformed organization. As is normal in our business, the timing of awards and starts of projects can have an impact on our quarter-to-quarter operating performance. That being said, our expectation is that we will achieve a revenue level in the fourth quarter that returns the business to profitable performance with gross margins at or near our target range of 10% to 12%. I'll now turn the call over to Kevin to discuss our results, and then we will open for questions.

Thank you, John. The second quarter was shaping up to be in line with our expectations. As John discussed, project award activity was strong across all three segments. Our liquidity improved during the quarter, and operating results for the second quarter were similar to the first quarter with one exception. Unfortunately, the outlook or change order recovery and an increase in the forecasted costs to complete a midstream gas processing project in the Process and Industrial Facilities segment changed significantly just prior to our original planned release of earnings. As a result of that change, we recorded a significant adjustment through the project forecast and put the project into a loss position. We recorded a quarterly charge of $9.6 million or approximately $0.36 per share. The project is scheduled to be mechanically complete in the fourth fiscal quarter. We will continue efforts to manage the forecasted costs and negotiate a reasonable outcome of our claims with the client. This adjustment also triggered a goodwill impairment analysis for the impact of business unit in the Process and Industrial Facilities segment. To be clear, the long-term prospects of the Process and Industrial Facilities segment are strong across multiple markets, including completed thermal banking chambers, refining renewable fuels, chemicals and mining and minerals. However, our recent project performance and near-term prospects in the gas processing portion of this segment required us to reevaluate the fair value of the related goodwill. In the medium term, an impairment of goodwill was required for one of the business units serving this market and recorded a non-cash charge of $12.3 million or approximately $0.46 per share in the quarter. Our second quarter revenue was $194 million compared to $208 million in the first quarter. Consolidated gross profit decreased to a loss of $1.3 million in the quarter, including the project adjustment. Excluding the adjustment, our gross profit was $8.3 million in the quarter, and our gross margin was plus 4.3%, which was somewhat lower than our expectations due to under-recovered overhead costs at this revenue level, which impacted gross margins by 230 basis points. We expect under-recovery to improve as revenue levels increase in the fourth quarter. Consolidated SG&A expenses were $17.5 million in the second quarter compared to $16.8 million in the first quarter. The increase is primarily related to project Symcox as we continue our efforts to increase our backlog quality projects. We also incurred $1.3 million of restructuring costs in the second quarter, primarily related to closing and underperforming offices. Our effective tax rate for the second quarter was 0 as expected. We will continue to place valuation allowances on newly generated deferred tax assets and we'll realize the benefit associated with the reserve deferred tax assets when the company returns to profitable performance later in this year. For the three months ended December 31, 2022, we had a net loss of $32.8 million or $1.22 per fully diluted share. On an adjusted basis, we had a net loss of $14.4 million or an adjusted loss of $0.53 per fully diluted share, of which $0.36 related to the previously mentioned project loss. Now turning to our segments, starting with Utility and Power Infrastructure. Revenue from the Utility and Power Infrastructure segment increased to $51 million in the second quarter compared to $45 million in the first quarter, a higher revenue volume related to increased power delivery work. The company is substantially complete with the previous peak shaver projects, and the newly awarded peak shaver projects will not begin to positively impact revenue until the end of the fiscal year. The segment gross margin was 4.8% in the second quarter of fiscal 2023 compared to 3.8% in the first quarter. The margin increase was related to improved overhead recovery. While margins are improving, the segment continued to be impacted by work on projects with previously produced gross margins and projects that were bid in a highly competitive environment. In Process and Industrial Facilities, revenue was $81 million in the second quarter compared to $87 million in the first quarter. The decrease was primarily related to the project adjustment previously discussed. Gross margin was a loss of 6.4%, excluding the $9.6 million adjustment on the gas processing project. The segment gross margin was a positive 5.6%, which improved modestly over the first quarter gross margin of 5%. The segment continued to incur under-recovered overhead costs in the second quarter, which impacted gross margins by 250 basis points at this revenue level. And finally, in Storage and Thermal Solutions. Revenue decreased to $63 million in the second quarter as compared to $77 million in the first quarter. The revenue volume was lower than expected as the award of a large storage project was delayed, and that project was previously expected to begin generating revenue in the second quarter. While the ultimate award of that project is not known, the company has successfully captured other storage project awards as evidenced by the 1.8 book-to-bill for the first six months of the year. These award projects will generate additional revenue that have a later start date than the affirming project. As a result of the decline in quarterly revenue for the Storage segment is temporary, and we expect to see a substantial increase in the fourth quarter. The segment gross margin was 2.6% from the second quarter, which was impacted by two issues: lower revenue volume negatively impacted overhead recovery, which had a 460 basis point impact in the quarter, and increased forecasted costs to complete a smaller capital storage project had a 260 basis point impact in the quarter. That project was awarded, and a competitive environment is scheduled to be completed in the fiscal year. Now turning to liquidity. As of December 31, 2022, we had total liquidity of $80.5 million, an increase of $23.9 million during the quarter. Liquidity improved primarily as a result of an expected decrease in working capital investment, resulting from the timing of cash flows on projects. Liquidity is comprised of $31.5 million of unrestricted cash and $49 million of borrowing availability. The company also has $25 million of restricted cash to support the credit facility and borrowings of $15 million. We expect our liquidity position to continue to improve for several reasons, including expected improved operating results in the fourth quarter, the receipt of approximately $13 million of tax refunds in the third fiscal quarter and positive cash flow from newly awarded capital projects. Overall, the operating results for the second quarter were disappointing. However, the latency projects that negatively impacted our results will be completed within the fiscal year and many of the headwinds we have been facing are abating. In addition, a number of our businesses are generating improved operating performance, with margins out of the near targeted ranges. Combined with the strong award activity and the strength of the project funnel, we are confident that our revenue will increase. Gross margins and overhead recovery will improve, resulting in significantly improved operating results and a return to profitability. We'll now open the call up for questions.

Our next question comes from Brent Thielman from D.A. Davidson. Your line is now open.

Hey great. Good morning, John, Kevin. I guess just one question on the revenue volume. Just kind of wanted to gauge your temperature. I mean, are you surprised by the time it's taking to kind of get some of these new awards moving forward? Kind of anything unusual behind that? And then I just kind of want to get your confidence about what you're seeing happen with some of these awards, again, gives you confidence around pickup in the fourth quarter as you've laid out?

Yes. The revenues for the quarter were generally in line with our expectations, with the exception of volume in internal storage solutions, which was a bit lower than anticipated. This is due to a large storage project that we expected to begin in the second quarter, which would have contributed significantly to our revenue. However, that project has not yet been awarded, and the timeline for approval remains uncertain. The positive aspect is that the segment has secured several other projects in the past six months, so the potential for increased revenue is still intact, but it has just started later compared to the unawarded projects. That is the only difference in our revenue outlook. The timing for some projects being pulled into our backlog typically takes up to two quarters before generating substantial revenue. Some will involve initial engineering phases, and certain projects are more complex, requiring additional time to negotiate contracts, which can also take months to finalize permits. As we mentioned earlier, it generally takes a quarter or two for these factors to begin affecting our revenue.

And John, is that just because these are kind of more of the larger capital projects? Is that fair?

Yes. Even for larger capital projects, as well as those in the $30 million to $50 million range, the timeline depends on the client and their processes after selecting a contractor. We could be chosen and add these projects to our backlog, but it may take a few months before we start investing in them. This is simply the nature of the business. As we return to our revenue levels, this has a more significant impact on our operations from quarter to quarter until we reach a stable revenue run rate that is essential for the company.

Okay, that's helpful. I am curious about the midstream gas processing project. Can you explain why negotiations didn’t lead to the expected outcome? Additionally, are there other similar negotiations with customers that could pose a risk of having a similar outcome, or is this situation truly unique?

Yes. I think this is an unusual situation. As we've mentioned in previous calls, this is likely the last of our larger COVID contracts. I would say we are still in discussions with our clients regarding some commercial issues, but we believed it was necessary to take the position we have at the time of the filing.

Understood. And I guess, John or Kevin, any context for what sort of revenues left for that job as we work through the kind of fiscal second half?

Yes, so $25 million to $30 million. A lot of that will be out in the third quarter.

Okay. And John, I mean, you sound pretty confident. Book-to-bill is going to be pretty strong here over the next couple of quarters? I mean, any kind of highlighted sectors you want to point to, you're really seeing a lot of activity?

Yes, I think storage is a key area. There is significant activity in storage related to LNG, ammonia, ethane, propane, and hydrogen. We continue to engage in this sector, with many opportunities arising from pre-feed work and hydrogen projects, both domestically and internationally. We believe there are substantial opportunities ahead for LNG shaving facilities and LNG plants that are connected to shipping or grain exporting. We feel optimistic about our position and anticipate solid awards and positive bookings in the upcoming quarters. While the timing of when these can be added to our backlog may vary from month to month, the growth trend in our backlog is what truly matters. Looking ahead, we are observing a very favorable trend in awards and the expansion of our backlog.

Okay, great. Appreciate that. Best of luck.

And our next question comes from John Franzreb from Sidoti. Your line is now open.

Hey John, Kevin. Thanks for taking my question. Just to circle back to the midstream processing project. Was there anything unique about this contract that you didn't have to engage in before?

I don't think it's anything. Regarding the process, design, fabrication, and construction of the facility, I would say it's not particularly complex for us.

So, what was the unusual part that the customer had concerns about regarding the changes in scope?

Well, I really don't want to debate that in public. So, we're trying to give you guys a perspective of the challenges on the project. Certainly, the supply chain issues that I think the planet has felt over the last 18 months have had an impact from both us, in terms of delivery timeframe and inflationary pressure. And as we noted in the release, the job had significant changes in scope from the client. And when there's a significant number of changes, that can also impact our ability to perform as we had planned. And so those are things that we're working through with our clients, and we're continuing to do that.

So, John, do you feel there's any in hindsight, I guess, any operational changes that you should make in order to prevent this kind of incident from happening again?

I mean, we'll do what we normally do. We will do a lessons learned, and we will do a lessons learned with the client. If that's supported to us when we're done and to talk about how we interact. There's continues to be possibility for future work with this client, and certainly, that would be an outcome that we would like. We have a lot of clients. We build complex projects with over and over again. And so, they're obviously happy with our performance. And so, I would say this is still a bit of a unique situation. But we're always honest with ourselves, and we'll look at the areas where we think we could have done something differently or better, and we'll make those adjustments.

Okay. And it sounded like during the quarters, you made some minor structural change, closed down an office. It makes me wonder if the breakeven point for the company has changed at all, either positively or negatively in light of recent operating environment?

So, I don't think it's changed significantly from what we talked about in the last quarter. One and a half years ago, we were talking about $200 million being kind of a quarterly breakeven, and that's gone up a bit to probably $215 million to $220 million based on inflation. So, but there's not a big change in what we need to either fully recover or breakeven.

Okay. And the revenue that was pushed out of storage, you said you expected it to close and be working on it in the quarter. That job hasn't closed. Is there any expectation it will close by year? Or do you think it's firmly pushed out for now?

Yes, we've sort of taken the position here that this project will not be completed in this fiscal year as we look at our forecasting going forward. And so, it was a fairly sizable storage-related project, but the owner has had issues getting to financial close and permitting. So, we've kind of taken the position, and we've been working with them for a while doing some fieldwork, and we were working towards converting that into a full contract. We're kind of out of that process right now until they get their situations together and make a decision on how to proceed with the project. So, we fundamentally taken it out in the middle of the second quarter, basically. And so, that's why you've seen this impacts in the second quarter.

Got it. And John, you said that the jobs in the backlog are closer to historic norms on the gross margin side. How far away, across the whole business profile, do you think you're off from getting normalized gross margins? And what kind of timing do you see on realizing that?

We are increasing the average in our backlog. Some of the newer projects that contribute to the $300-plus million in awards for the quarter are helping raise those averages. While this average may seem low from a historical standpoint, we typically see strong performance across our projects each quarter. We can enhance our direct margins by either reducing costs or converting other contingencies into profit. Historically, we find more opportunities to increase margins than to decrease them, which helps to maintain those margins within that range.

Okay. And I guess one last question, and I'll jump back in. There was once a time you talked about exiting fiscal 2023 with a $1 billion backlog. Is that number still on the table? Or has that been pushed to the left or right, either way?

That's still on the table for me.

And thank you. And I am showing no further questions. I would now like to turn the call back over to John Hewitt, President and CEO, for closing remarks.

So, thank you, everybody, for joining us today. Certainly, a challenging quarter for us, but we are making progress with the organization, all the things that we've done and we've invested in. We feel very strongly about the direction of the organization and where we're going, and we are going to continue to build backlog and continue to improve operating results here over the next couple of quarters. So, we look forward to speaking with everybody in May.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.