Good morning and welcome to the Matrix Service Company Conference Call to discuss the results for the Third Quarter of Fiscal 2023. As a reminder, this conference call is being recorded. I would now like to turn the conference over to today's host, Ms. Kellie Smythe, Senior Director of Investor Relations of Matrix Service Company. Please go ahead.

Good morning, and welcome to Matrix Service Company's third 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 and Presentations 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. Good morning, everyone, and thank you for joining us. I'd like to open the call with congratulations to our operations team for being recognized for contractor safety achievement at five separate refineries by the American Fuel and Petrochemical Manufacturers Association. These safety recognitions represent a strong commitment and leadership our people bring to the workplace every day. Thanks to all our employees for making safety a critical part of your mission. Our business update: we continue to see very strong award momentum as reflected in total project awards of $309 million in the third quarter. This resulted in a book-to-bill of 1.7, our seventh consecutive quarter at or above 1.0. Year-to-date, we have been awarded $862 million in projects, up 35% over the same period in the prior fiscal year. This has resulted in a book-to-bill of 1.3 or greater in each of our segments and a consolidated book-to-bill of 1.5. We are seeing positive trends in our business as event projects build backlog and execute with our transformed organization. Bidding activity remains robust across all segments, and we're confident the strong award cycle will continue. At the end of the quarter, project backlog was $832 million, a 42% increase from the start of the fiscal year with backlog across each of our segments. Timing of awards aside, our proposal activities suggest that we will return to a more normalized backlog of more than $1 billion in the near term. Keep in mind that many of the larger projects we're putting into backlog may take upwards of six months before they have a material impact on revenue and, in rare instances, perhaps longer. In any case, as this improved quality, size and growing backlog flows more steadily through the business, financial results will improve along with higher and more stable revenues. From a segment perspective, Storage and Terminal Solutions, our third-quarter book-to-bill was 1.3 on awards of $66 million. This segment includes significant near-term opportunities for storage infrastructure projects related to LNG, Ammonia, Hydrogen and NGLs. We believe specialty vessel internal projects in LNG and Hydrogen will be key growth drivers for this segment. At our Utility and Power Infrastructure segment, our book-to-bill was 0.7 on awards of $26 million, primarily comprised of power delivery maintenance and smaller capital projects. Power delivery bidding is very active, and the opportunities are expanding as we grow our core utility electrical business through market capture, client expansion and geographic reach. For LNG peak shaving projects, also part of this segment, market opportunities continue to be strong and our proposal teams are very busy. These projects have a long proposal process, are much larger in size on an individual basis, and less frequent but provide a much longer sustainable backlog for the segment. We expect to expand this part of the segment backlog in the next two quarters as we convert opportunities to live projects. Finally, in Process and Industrial Facilities, our book-to-bill was exceptionally strong at 2.2 on awards of $217 million, which included a large construction project to upgrade a natural gas compressor station. Other construction projects of a similar size and nature are currently in the proposal process. We also continue to see demand for refinery and maintenance turnaround work, as well as increasing opportunities in mining and minerals, chemicals and renewables processing facilities. Over the past year, our project opportunity pipeline has stabilized and now consists of $5.6 billion in projects greater than $5 million. This pipeline does not include our normal day-to-day and recurring maintenance and small project activities which represent approximately one-third of our business revenue across all three segments. We continue to actively support and pursue work with our clients in the traditional energy and chemical space, which represents approximately 26% of our consolidated opportunity pipeline. We are also supporting many of these same clients as they invest in projects that deliver on more support, delivering low-carbon energy and industrial infrastructure; these represent 72% of our pipeline. The skills and expertise that Matrix offers as an engineering and construction contractor position us well to bid and win our fair share of this work and will provide us with a long sustainable runway of quality projects. This runway is supported by key market drivers that provide strong tailwinds as client spending decisions are made based on concerns by global energy security, aging infrastructure, energy reliability domestically, the clean energy transition, and the need for commodities to support these investments. Regarding federal infrastructure investments, the Inflation Reduction Act is forecast to unlock $3 trillion of infrastructure investments over the next decade, with large equipment from the government expected to be a springboard for private sector spending. Down to the third-grade energy revolution, this will significantly accelerate upgrades to electrical infrastructure and growth across the hydrogen ecosystem in the U.S. and internationally. From a services and expertise perspective, Matrix has a significant role to play across nearly every aspect of these infrastructure investments, which impacts all three of our segments. With respect to hydrogen specifically, this is a mid- to long-term opportunity given that the market is effectively in the first inning of what will be a multi-decade investment cycle. While several companies in the U.S., including Matrix, build project storage spheres for butane and propane, only two, one of which is Matrix, have engineered and constructed cryogenic hydrogen spheres. Considering the massive investment to build out hydrogen infrastructure, both domestically and globally, today the bidding environment for hydrogen sphere storage as they react and we expect it to be added to our backlog in the coming quarters. We are working on pre-FEED studies with several energy majors to help them develop hydrogen storage solutions, both domestically and abroad. Additionally, in support of growing opportunities abroad, we have just signed an exclusive relationship with France-based Tassal industry to offer total engineering, procurement and construction solutions for liquid hydrogen storage across the United Kingdom, Norway, Switzerland and the European Union. Expect to see a press release about this relationship later today. As I said earlier, we are in the early innings of an energy revolution, one that will occur globally, and Matrix has positioned itself with technology and business partners, key employees, strong brand awareness, and blue-chip clients to play a very active role in bringing these various projects to life. Overall, in both the short and long term, the market supports our vision for the future, a growing award and backlog position, and a return to normalized financial performance as this backlog flows through the business. I'll now turn the call over to Kevin to discuss our results, and then we will open up to questions.

Thanks, John. Overall, the operating results for the third quarter were in line with our expectations, except for some additional cost growth as we move towards the completion and closeout of our midstream gas processing work, more on this shortly. Our third-quarter revenue of $187 million was in line with our expectations, as certain projects awarded in prior periods continue to work off, while the contribution to revenue of newly awarded projects are still limited as they progress through engineering and planning stages. We anticipate higher revenue volumes in the fourth quarter as the newly awarded projects enter the revenue stream. The added revenue from these newly added projects will also have a positive impact on our gross margins. Our gross margin in the third quarter was 2.4%, as a result of under-recovery of construction overhead costs on lower revenue in some parts of the business. This impacted the gross margin by approximately 400 basis points. The company also incurred an additional $3.3 million in the quarter related to forecasted costs to complete and close out certain midstream gas processing work, which we expect to be mechanically complete by the beginning of July 2023. This additional cost negatively impacted the gross margin by 180 basis points. Gross margins for the remainder of our work improved as we move toward historical margins. The margin profile of our backlog also continues to improve as we book new projects in line with previously stated ranges. Consolidated SG&A expenses were $16.9 million in the third quarter, which is consistent with the first two quarters of the year. The company continued our focus on cost control and expects to leverage the cost structure as revenues improve beginning in the fourth quarter. During the first two quarters of the year, our effective tax rate was zero. That continued in the third quarter with one positive exception, interest of $400,000 received in tax refunds which recorded a tax benefit in the quarter. We continue to place valuation allowances on newly generated deferred tax assets and we'll realize the benefit associated with the reserve deferred tax assets as the company returns to profitability. For the three months ended March 31, 2023, we had a net loss of $12.7 million or $0.47 per fully diluted share. On an adjusted basis, we had a net loss of $8.9 million or $0.33. The primary difference between unadjusted and adjusted earnings in the quarter relates to the valuation allowance placed on deferred tax assets. Now turning to our segments; starting with Utility and Power Infrastructure. Revenue for the segment decreased to $35 million in the third quarter compared to $51 million in the second quarter, following the completion of peak shaver work included in the first half of the year. Revenue from the awarded peak shaver project added in the second quarter will not begin to benefit revenue until late in the fourth quarter of fiscal 2023. Third-quarter gross margin was 8%. This margin was driven primarily by good execution on our mix of reimbursable power delivery work. As the volume of LNG peak shaving work increases in this segment, we will be able to sustain and exceed this gross margin level. In Process and Industrial Facilities, revenues increased 0.3% to $100 million in the third quarter compared to $81 million in the second quarter. The increase was primarily related to refinery turnarounds and maintenance. The third-quarter gross margin of 3.2% was negatively impacted by increased forecasted costs to complete midstream gas processing work discussed previously, which reduced gross profit by $3.3 million for the quarter. After work in the segment, including refinery turnaround and maintenance, aerospace and mining and minerals, which amounted to approximately 80% of segment revenue, produced a gross margin of approximately 10% on strong project execution. Finally, in Storage and Terminal Solutions, revenues decreased to $52 million in the third quarter as compared to $62 million in the second quarter. While project awards have been strong for this segment, with the year-to-date book-to-bill of 1.6, these awards will not begin to generate additional revenue until the fourth quarter. The third-quarter gross margin for the segment was a negative 1.6% as the low revenue volume resulted in substantial under-recovered construction overhead costs. The under-recovery impacted gross margins by 950 basis points. Revenue volume is expected to significantly increase in the fourth quarter as awarded work accelerates on projects that have a higher gross margin profile. This added revenue will virtually eliminate under-recovery of construction overhead costs for this segment. Now, turning to liquidity. During the third quarter, our liquidity increased to $11.9 million as a result of an expected decrease in working capital investment and the receipt of tax refunds. Liquidity of $92.4 million is comprised of $48.2 million of unrestricted cash and $44.2 million of borrowing availability. The company also has $25 million of restricted cash to support the credit facility and borrowings of $15 million. The company's financial position is sufficient to support the needs of the business and pending growth that will come from the strong award activity achieved throughout fiscal 2023. I will now turn the call back to John.

Thanks, Kevin. Before we open up for questions, just for some closing thoughts here. I want to make sure that it's clear that the business is making progress toward normalized levels of operations with many parts of the company on plan. While getting there has taken longer than we expected, by the end of this fiscal year, we will have worked through substantially the lower-margin projects that were awarded and impacted during the pandemic period. We've also transformed our organization to be better able to leverage our cost structure as revenues return, improve efficiency, competitiveness and quality of our deliveries. We strategically focused the company's business development approach and services platform by narrowing the list of existing and new markets with opportunities for sustainable growth now and in the future, and significantly improved our project awards and backlog in terms of both size and margin profile, which we expect to continue. As we move into our fourth quarter of the fiscal year and into our fiscal 2024, we are positioned to continue our business improvement progress by reaching $1 billion plus in backlog, achieving our revenue expectations, and returning our margin profile to more historical ranges. With that, I'll open the call for questions.

The first question will be coming from John Franzreb of Sidoti.

I'd like to start with John, something that you just closed out with regarding the low-margin business or unprofitable business that is still running through the P&L. Can you quantify how much that impacted third quarter results? And if I heard you correctly, you expect that to be completely done by the fourth quarter?

So the one specific job I think Kevin said in his notes impacted margins by around $3.3 million, $3.2 million. And that project, we are focused on mechanical completion probably sometime within the first two weeks of July, at which time a couple of weeks after that when we turn the moment to the client. So the material spending related to the project would be over in that timeframe.

And John, as far as it goes on a consolidated basis, I'd say we're probably in the 15% to 20% of revenue that is at the lower margin type work in the third quarter that opportunity should decrease in the fourth quarter and be down in the single digits, low-single digits as we move into fiscal '24.

Okay, got it. And specifically on, let's call it, the two weaker segments on the quarter, Storage and Utility. You indicated you expect Storage to bounce back sizably by the fourth quarter. Just walk us through what's going on in Storage and Utility that we should think about, the puts and takes as far as the revenue profile for the balance of the year, fiscal year?

Some of the larger storage contracts we received in the first and second quarters took longer to reach a point where we could begin spending from those contracts. Each contract had unique challenges, including regulatory issues our clients needed to resolve and completing contract negotiations. Additionally, there were engineering preparations necessary for ordering materials and laying foundations. This has represented a minor revenue portion so far. For a couple of those contracts, we expect to move into the field and be actively engaged in fabrication and construction, which will begin impacting revenues in the fourth quarter. Moreover, we've been quite busy with other awards and bookings for different storage projects that are set to start more actively in the fourth quarter. On the Utility and Infrastructure side, we are seeing a very active bidding environment in power delivery. We are broadening our client base and expanding geographically. From an organic growth perspective, revenues in that area now include more transmission work than historically, which has been beneficial for revenues and margins, and we anticipate that this trend will continue. We also added a smaller peak shaving facility to our backlog in the second quarter. This required some upfront engineering work before we could start ordering equipment and mobilizing to the field, with that activity expected to commence later in the fourth quarter.

Got it. I guess one last question and I'll let somebody else take over. Regarding the bookings that you're doing today, how close are they to being back to normal historic gross margin profile? And if some businesses or segments are not up to that level yet, what's the resistance in getting there?

So Kevin can follow on here. I would say the majority of the larger project work that we've been booking here this fiscal year is in our historical gross margin profile. And with, I think, the right risk profile associated with those. And so those awards have been pretty well spread across all the segments. Utility and Power Infrastructure has probably got the smallest volume, but it also has some of the largest opportunities out in the near term to turn that around. So I think those projects, those projects that we've been putting in backlog this year, all of them are in that historical profile.

Yes, I'd just add on the larger projects are definitely in that double-digit gross margin profile. If you get to the smaller projects, a lot of times those are a bit more competitive against more contractors and the margin opportunity of those projects may not be as high.

And our next question will be coming from Brent Thielman of D.A. Davidson.

Great. John or Kevin, I guess, with these multitude of large projects ramping up here, do you think you can get to that $1 billion kind of annual revenue run rate in the fourth quarter? Hello. Kellie, it's Brent Thielman. Can you hear me?

Brent, we can hear you. Can you hear us okay?

I can hear you, yes.

To answer your question, we anticipate reaching the $1 billion annual revenue run rate in either the second or third quarter of 2024, based on the opportunities we see ahead and the timing of awards.

Okay. I guess maybe off of that, do you still expect an acceleration from here? I think there was some anticipation that might come this quarter.

Yes. I believe we will see an acceleration in our revenues in the fourth quarter and into the first quarter. If you visualize it as a graph, there will be a rise, followed by a plateau, then another rise, and another plateau. We expect this step process to occur as we move into fiscal 2024 and progress through those quarters.

Okay. And then John, I've heard some other companies talking about sort of future pipeline prospects associated with hydrogen kind of more beyond this year. You mentioned hydrogen storage projects as an opportunity. Is that something you see as early as this year, or are these going to be things that will be further out?

Yes. We're bidding. The overall hydrogen infrastructure build-out that I think is in fairly early innings, but there are still a lot of opportunities domestically and internationally for individual hydrogen storage spheres into either existing industrial facilities or into some of the early regional hubs that are getting built. So we're filling a lot of those projects now. We're bidding a fair amount of them that are both domestically and, with this new relationship with Tassal, we mentioned we hope to start providing engineering and procurement services to support their efforts in Europe. I feel fairly confident in saying that as we move into fiscal '24, we should start adding more hydrogen projects into our backlog. Right now, we're doing some feed work for some clients on some hydrogen facilities. We're doing some study work to upscale the size of hydrogen storage for a couple of energy majors, but those are not certainly not big revenue dollars, but they position us very well for what we see to be a pretty large investment cycle outside.

Okay. Given that you have maintained or even increased your headcount over the last few years in anticipation of a better market, which seems to be arriving now with a strong bid pipeline ahead, what level of annual revenue are you ready to take on as we work towards a $1 billion run rate?

Yes, that's a good question. Overall, we have kept our headcount relatively flat over the past couple of years. We may have added a few positions for specific projects, but we have also reduced some administrative headcount to balance that out. Currently, our cost structure supports an annual revenue of about $1 billion to $1.1 billion. We will need to add select positions based on which projects contribute to that revenue. A key aspect of our financial improvement, as we have discussed, is that not only is revenue volume increasing and margins improving, but we are also leveraging our cost structure by eliminating the under-recovery of construction overhead costs and reducing SG&A percentages. These elements are critical. As a company, we are committed to maintaining our cost structure while ensuring we have the necessary infrastructure to execute our projects. As we return to profitability, we will see some variable costs come back in. However, overall, we plan to keep our cost structure stable to maximize leverage.

Thank you. And I would like to turn the call back over to John Hewitt for closing remarks.

Thanks, everybody, for taking the time today to join us on the call. I wish everyone to be safe out there, and we look forward to speaking with you on our next call.

Thank you all for participating in today's conference call. This concludes today's event. You may all disconnect, and everyone, enjoy the rest of your day.