Good morning, and welcome to the Matrix Service Company conference call to discuss results for the second quarter of fiscal 2025. Currently, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Instructions will be given at that time. 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 for Matrix Service Company.

Thank you, Olivia. Good morning, and welcome to Matrix Service Company's second quarter fiscal 2025 earnings call. Participants on today's call include John Hewitt, President and Chief Executive Officer, and Kevin Cavanah, Vice President and Chief Financial Officer. John will provide an overview of financial results and our longer growth strategy, and Kevin will then provide greater detail on the quarter, our balance sheet, and the outlook for the rest of the year. Following our prepared remarks, we will open up the call for questions. Presentation materials referred to during the webcast today can be found under Events and Presentations on the Investor Relations section of MatrixServiceCompany.com. As a reminder, on today's call, we may make various remarks about future expectations, plans, and prospects for Matrix Service Company. They 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 because 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. Forward-looking statements made today are effective only as of today. To the extent we utilize non-GAAP measures, reconciliations will be provided in various press releases, periodic SEC filings, and on our website. Finally, all comparisons today are for the same period of the prior year unless specifically stated. With respect to corporate access and investor marketing opportunities, you are invited to contact me through the Matrix Service Company investor relations website. Turning now to our safety moment. At Matrix, our purpose is to build a better future, improve quality of life, and create long-term value for our people, business partners, shareholders, and communities by engineering, constructing, and maintaining energy and industrial infrastructure that improves the quality of life, not only for people in this country but also around the world. Infrastructure that provides the energy needs to fuel our homes, transportation, and businesses. And serves as the building blocks for the creation of clothing, medicine, technology, and leisure activities, to name just a few. But our purpose is an empty promise if we do not keep the people that touch our job sites and offices free from injury. We must execute work with a high degree of quality and above all else, safely. Our culture of safety starts with the fact that we care about people's mental and physical health. It is what we expect, how we lead, and what ensures we can deliver on our purpose. On behalf of our leadership team, I want to thank our employees for your leadership and accountability to safely achieving our purpose. I will now turn the call over to John Hewitt.

Thank you, Kellie, and good morning, everyone. We continue to successfully execute on our diverse project portfolio and have continued to advance work on our backlog of large multiyear projects during the second quarter. A performance that culminated in strong organic revenue growth. We delivered revenue growth within both our storage and terminal solutions and utility and power infrastructure segments during the second quarter as we continue to drive strong project execution across the organization. Having said that, I need to make two key points about the quarter. First, was the delay in the award of a major energy project expected in the second quarter that negatively impacted our book to bill. We continue to work towards completion of the contract negotiation and expect that to occur in our third quarter. Once completed, we will be able to take this project into backlog, which, with other anticipated awards, will support a strong third-quarter book to bill. Second, planned mobilization to site for one of our current major projects in backlog moved to the second half of the year. The project is on track with mobilization occurring now with plans to begin active construction before the end of the fiscal year. The combination of these events, while good for the business in the long run, has led us to lower our full-year revenue forecast by approximately 5% at the midpoint of our guided range. Accordingly, we have revised our fiscal 2025 revenue guidance from a range of $900 to $950 million to a range of $850 to $900 million. It is important to note that our long-term outlook for the business continues to strengthen. Our opportunity pipeline, which was $5.7 billion at the end of the second quarter, has increased to $7 billion through January of 2025. This provides further support for the long-term outlook for the business. Importantly, as our booked projects mature, we expect our visibility on future revenues to improve, reducing the variability in our backlog to revenue conversion. Despite the slight reduction in fiscal year 2025 guidance, I want to remind our investors of several key points. First, we expect Matrix will generate organic revenue growth in the second half of fiscal 2025, up greater than 40% when compared to the second half of fiscal 2024. Second, because of this revenue growth, we expect to return to profitability in the second half of fiscal 2025, given improved fixed cost absorption, operating leverage, and margin realization. And third, we expect to deliver a full-year book to bill of at or greater than 1.0 in spite of the softer bookings this past quarter. Our balance sheet and liquidity position were very strong, exiting the second quarter, consistent with our disciplined approach to capital management. Turning now to an overview of current market conditions across our core energy and industrial infrastructure end markets, we firmly believe the current policy environment is supportive of accelerated permitting for large energy and industrial infrastructure projects, including those storage and terminal projects where Matrix is a market leader. Importantly, we have the ability to serve the full continuum of traditional upstream, midstream, and downstream businesses together with lower carbon energy platforms. Demand for LNG, NGL, and ammonia storage and terminal infrastructure remains very favorable. As of January, domestic LNG export capacity is on track to grow by 85%, more than 21 billion cubic feet per day by 2028. Notably, there's another 26 billion cubic feet per day of additional LNG export capacity that has been either approved by FERC or proposed but is yet to reach FID. Additionally, this more favorable regulatory climate positions Matrix to capitalize on growth in power demand and generation over the coming years. Longer term, between 2020 and 2040, US power demand is expected to increase by more than 55% according to IHS Markit. Our nation is on the precipice of a power generation deficit that is only growing larger given current consumption trends. There are multiple factors underpinning this increase in power demand, from industrial and population growth to the expansion in cloud computing. Matrix possesses the expertise to not only build the generation infrastructure but also the fuel storage and delivery facilities. Due to our brand-leading cryogenic market position, we will play a critical role in this next phase of our nation's economic development. Overall, our nation's energy mix is expected to pull from a wide range of sources, including fossil and renewable fuels, and, longer term, nuclear. In particular, increasing natural gas demand will continue to play a central role in supporting the growth in global energy consumption, creating a clear need for supply and storage infrastructure that goes with it. Looking ahead, more than $2.3 trillion of domestic infrastructure investment is projected to occur between now and 2030. If Matrix wins a fraction of this investment spend, it will represent a transformational upward inflection in the demand for our business. As I said earlier, as of December 31, 2024, our pipeline stood at $5.7 billion of projects where we have submitted or plan to submit bids, which gives us confidence in achieving a sustainable growth trajectory as we proceed into next year and beyond. This pipeline has since grown to more than $7 billion, primarily driven by LNG peak shaving opportunities where we hold a leading brand position. As a reminder, many of the opportunities we are currently pursuing are expected to be bid and awarded over the next 12 to 18 months. Once awarded, many of these projects will reach completion over a multi-year period, providing long-term visibility into revenue. This does not include smaller capital projects that may lay the foundation for many parts of the business and play a key role in leveraging SG&A and construction overhead costs. Before turning the call over to Kevin, I want to take a moment to highlight and revisit our strategic business for the business. In recent years, our business has created value for our key stakeholders and partners, communities, and employees by focusing on five key strategic pillars. These pillars include our commitment to a culture of safety and performance excellence, expanding and evolving our capabilities to meet the performance requirements of our customers, bidding discipline and backlog growth, a focus on margin optimization through cost management and rationalization, and a returns-driven capital allocation strategy and balance sheet discipline. As you look out over the next three years, these pillars can be encapsulated within a strategy that we refer to as win, execute, deliver. In application, this strategy represents the framework through which we will continue to build a profitable growth platform of scale within our niche engineering and construction verticals. By remaining disciplined and focused on our pursuit, pricing, and contracting of project work, establishing market share in new verticals while retaining market leadership within current markets, continuing our established track record of delivering projects on time, safely, and on budget with high quality, and delivering improved operating leverage to support strong profitability, cash generation, and disciplined capital deployment. In summary, halfway through fiscal 2025, we continue to advance our strategic priorities as we return to profitability. A commercial focus on large complex projects across the energy and industrial landscape positions Matrix to capitalize on what we expect will be a historic period for domestic infrastructure investment over the next decade. Our proven ability to service the full project life cycle, from engineering and fabrication to construction and maintenance, provides customers with a turnkey solution that continues to drive high customer retention, with approximately 90% of historical revenue derived from repeat customers. Looking ahead, we intend to pursue a combination of organic and complementary inorganic growth to build a specialty E&C platform of scale within high-value energy and industrial infrastructure markets, consistent with our focus on long-term value creation for our shareholders. With that, I'll turn the call over to Kevin Cavanah.

Thank you, John. On an overall basis, the second quarter was as we anticipated. Last quarter, we stated we expected revenue to increase over the next few quarters. That increase has commenced as our revenue grew to $187.2 million in the second quarter, an increase of 7% over the prior year. This also represents a 13% increase over the first quarter of fiscal 2025. The growth is being driven by the storage and terminal solutions and utility and power infrastructure segments. We expect those segments to continue to drive strong revenue growth throughout the second half of fiscal 2025. Gross margin was $10.9 million or 5.8% in the second quarter compared to $10.6 million or 6% in the prior year period. Project execution was strong overall, with both the utility and power infrastructure and storage and thermal solutions segments leading the way. Gross margins continue to be impacted by under-recovery of construction overhead costs, but the impact is decreasing as revenue ramps. Construction overhead resources have been structured to support the strong market demand and anticipated revenue growth while supporting continued high-quality project execution and efficient utilization of the cost structure. The quarterly impact was approximately 40 basis points in the current quarter, which has improved from the prior year period, which was over 600 basis points. We expect the negative impact to continue to decrease in the second half of fiscal 2025 as revenue increases. SG&A expenses were $17.3 million in the second quarter and are in line with our normal run rate. We will continue to conservatively manage our cost structure as we execute our growth strategy. For the second quarter, the company had a net loss of $5.5 million or $0.20 per share compared to a net loss of $2.9 million or $0.10 per share in the prior year, which included a gain on the sale of the facility. Excluding the gain, the prior year adjusted net loss was $4.9 million or $0.18 per share. Coming to the segments, the storage and terminal solutions segment revenue increased 53% to $95.5 million in the second quarter compared to $62.4 million in the prior year due to increased volume of work with specialty vessels and LNG storage. The gross margin was 7.6% in the second quarter compared to 2.9% last year. Both periods benefited from strong project execution. The increase was driven by construction overhead recovery, which improved as a result of the significantly higher revenues. Prior year margins were negatively impacted by over 700 basis points from under-recovery compared to approximately 300 basis points in the current period. As quarterly revenue continues to increase through the rest of the year, the company expects to achieve full recovery of construction overheads. The utility and power infrastructure segment revenue increased 52% to $61.1 million in the second quarter compared to $40.1 million last year, benefiting from higher volumes of work associated with LNG peak shaving projects, partially offset by decreases in power delivery work. An improved mix of work drove gross margin to 5.6% in the second quarter compared to 3.5% last year. Similar to storage and terminal solutions, growth in revenue in the second half of fiscal 2025 should drive improved overhead recovery and gross margin performance. As expected, process and industrial facilities segment revenue decreased in the second quarter to $30.6 million compared to $71.3 million in the prior year, primarily due to the completion of a large renewable diesel project and lower revenue volumes for thermal vacuum chambers. Gross margin was 1.2% in the second quarter compared to 9.4% last year. Gross margins decreased due to changes in the mix of work, including significantly less new construction revenue, as well as an increase in the under-recovery of construction overhead costs due to lower revenues. The company believes this reduction is temporary given our strong backlog and opportunity funnel. Before we move away from operating results, there are a few high-level takeaways I want to review. First, revenue levels are critical to our earnings, and growth has started in the second quarter, continuing through the remainder of fiscal 2025. Second, project execution has been strong. Focus on project execution continues, and the margin opportunity within our backlog of $1.3 billion and our opportunity funnel continues to support a long-term consolidated gross margin target of 10 to 12%. Third, the company continues to correctly manage its cost structure in order to achieve improved leverage as revenue grows. Construction overhead recovery has been a significant issue. Improvement has started and will continue consistent with revenue growth. Coverage of SG&A as a percentage of revenue will also improve as revenue grows. Finally, the combination of these items will drive the improved performance toward our long-term financial targets we are seeking. Now let's discuss backlog, which stands at $1.3 billion as of December 31, 2024, and remains elevated on a historical basis. Project awards totaled $9.5 million in the second quarter, resulting in a book to bill ratio of 0.5 times for the quarter and a trailing twelve-month book to bill ratio of 0.9 times. While the timing of projects and awards impacted the first half of fiscal 2025, we believe early third-quarter award activity and the market environment provide for a strong second half of awards, supportive of our goals of $1 billion in fiscal 2025 project awards and a book to bill above 1. Moving to the balance sheet, net cash provided by operating activities during the first half of fiscal 2025 was $45.5 million. This growth is primarily the result of payments from customers associated with active projects and backlog, which demonstrates the certainty of our backlog and provides a positive indicator for the future. This also increases our total liquidity of $211.7 million. Liquidity is comprised of $156.8 million of unsecured cash and cash equivalents and $54.9 million of borrowing availability under the credit facility. The company also has $25 million of restricted cash to support the facility, and our debt position remains at zero. We will continue to proactively manage the balance sheet and have the financial strength and liquidity needed to support the positive revenue inflection as we progress through the remainder of fiscal 2025. We also utilize a disciplined approach to capital allocation, one that seeks to maximize our return on invested capital over time while minimizing business risk. This concludes our prepared remarks. We will now open for questions.

Thank you. And as a reminder, to ask a question, you will need to press star one one on your telephone. Please stand by while we compile the Q&A roster. And we have a question from Brent Thielman with D.A. Davidson. Your line is now open.

Hi. Good morning. Thank you for the time. With the guidance reduction, which business or business segments does the $50 million revenue adjustment reflect this push out?

That was primarily in the storage and terminal solutions segment, I believe.

And just in terms of knowing where about this project, we're in the process of the project development. Are you guys...

So the project was awarded, I believe, in the last fiscal year. We have been working on engineering, working through procurement, and we had anticipated mobilizing the site earlier than where we are now mobilizing the site. But it's not an indication of project health. Various factors that come together both on the client side and our side is where the scheduling is laying out for us to mobilize the site. A lot of the heavy spend for these larger projects comes with the construction. And so the movement of that mobilization into the back half of our year pushes the revenue out into succeeding years. So nothing, the project's in good shape, healthy, client's good, backlog's good. It's just a timing issue of when we finally decided to mobilize the site.

Perfect. And just going back to the guidance, how confident are you guys in reaching profitability in the second half of 2025? In other words, do you expect any other work delays to create some sort of fluctuations in your revenue growth?

So I think we feel pretty good about the ability to grow or continue growing our revenue quarter over quarter as we move out in time. As we grow that revenue, that'll support, as Kevin had said earlier in his remarks, we'll support absorption of overheads. And then there's a return to profitability. And so we feel pretty good about the ability of the organization to return to a properly profitable run rate within the back half of the year.

Thank you. And one last one for me. The energy project that you guys expect to move to the third quarter of this fiscal year, how do you guys see your backlog growth through the second half given that we went down from $1.4 billion to $1.3 billion moving into fiscal 2026? What do you guys expect to be the baseline?

Yeah. I think one thing, it's a couple of things that we talk about all the time. Our book to bills quarter over quarter isn't always a linear thing, right? Because we don't always control the award dynamics and timing from our clients, obviously. We have feedback from them during the sales and proposal process on how that's gonna flow through their organizations. We do the best we can to try to handicap that. But like I said, we've said in the past, you can have a couple of quarters where we're gonna be below one. And then you can move into the next quarter because of where the timing is for awards. And that next quarter's book to bill could be a two. And so I think the book to bill ratio for us has to be looked at on a long-term basis. We've got an exceptionally strong opportunity pipeline, as we noted here by the end of January, had climbed to over $7 billion. A big chunk of that opportunity pipeline is right within where our strong branding position is in that marketplace and in cryogenic storage and facilities of a variety of energy sources. And so we feel good about where we are in our ability to continue to win and book work. So that'd be one thing too. We're at $1.3 billion backlog versus $1.4, $1.4 and a half six months ago. $1.3 is a pretty good backlog level for our business. And so I don't know what the historical picture looks like, but it's up there in some of the high levels that we've had as an organization. So we've got strong backlog. We have a normal booking cadence every quarter of smaller capital projects and maintenance activity that books and burns on a regular basis, and we've got an exceptionally strong opportunity pipeline, and work is right in our wheelhouse. So I think our ability to maintain and build our backlog here as we move through subsequent quarters, through this fiscal year and beyond, is really, really good. And it's probably gonna be only limited by how much work we can actually take on.

Got it. And just one last one for me. Based on what you just said, can you provide a little more color into the type of conversations you're having with your clients, I guess, in terms of the types of opportunities that the current environment is setting up for you guys?

I think our clients, in general, our energy clients, feel good about where the energy environment is, the regulatory environment, the global demand for their products. And so I think the first half of the year is a little bit of a probably anomaly. I think people were, to some extent, probably concerned about the change of administration and what that regulatory environment was gonna look like coming into the new calendar year. So I'm, you know, while none of our clients have said specifically that the Presidential election cycle was affecting their decision-making, but I think it's only natural for that to be one of their risk profiles or making decisions. But all that being said, I think our client base, the clients that make up a significant part of our opportunity pipeline, feel positive about their businesses and positive about where they're planning to invest their capital.

Appreciate it. Thank you so much. I'll back end the call.

Thank you. Our next question coming from the line of John Franzreb with Sidoti and Company. Your line is now open.

Good morning, John and Kevin. Thanks for taking the questions. I'd like to circle back to the deferred revenue. Just two points of clarification. It was a singular job, and you expect that to be realized early on in fiscal 2026, or is it spread out maybe more so in the fiscal year?

I'm not sure we know the timing of that, John. I would say probably it's gonna be spread into Q1 and Q2.

And was that a singular job?

Yeah. I mean, we always, every quarter, have revenues moving around. Things move up. Things move back, they have a tendency to sort of handle those things up. But when we look into the year at the significant things that are moving around, that job sort of highlights itself. And so from the perspective of the need for us to kind of relook at what our revenues are gonna be for the full year, that job kind of stood out. And so it's not going away. The job's not going away. It's just like I said in our prepared remarks, when we get into the construction side of the overall, these projects, that's really where the big flow of revenue really starts to ramp up. And so the delay in our moving on-site moves those revenues around. That's all. So good news, kind of good news, bad news thing.

Understood. And regarding your expectations to return to profitability in the second half, given the revenue landscape, is your comfort level more so in the fourth quarter than in the third?

Yeah. It definitely is more in the fourth quarter because what we've talked about is a ramp. Right? So we had 13% growth here in the second quarter over the first quarter. We're gonna continue to ramp up as we go through the year. It just doesn't all pop up in the third quarter. So the fourth quarter is obviously gonna be higher revenue of the two quarters, and so it's got more profit in it at the end of the day.

Understood. Understood, Kevin. And I believe in your prepared remarks, you still suggested optimism to have a gross margin profile in that 10 to 12% range. I'm just curious on the new jobs written. Are you seeing any better margins in, say, storage and weaker margins in process? Is there any disconnect relative to some of the historical bandwidths as far as the gross margin profiles are concerned?

So my view there is that the demand for our services and the size of the projects, which limits our competition, and the amount of spending that we think our clients are gonna be looking to do to take advantage of their markets, is gonna allow us to maintain a very strong margin profile in our projects. And so I think we're entering a market where our ability to win the right job with the right financial profile is improving.

Understood. That's good news, John. You talked about the opportunity pipeline jumping intra-quarter to $7 billion from $5.7 billion at the end of last quarter. I'm just curious, are these a few large jobs that are being built into the pipeline, or is it a plethora of smaller jobs? Can you maybe provide some color that caused such an attractive increase?

Yeah. I don't, you know, so we've got projects moving in and out of that pipeline on a regular basis, either they, we try to bid them at lost or might wanna put it on, off, or a job could be canceled. But, yeah, overall, the trend has been steady to up. The big change, I think, for what we saw from Q2 to Q3 was the addition of four LNG peak shaving kind of projects, which we've got a very strong market position in domestically. And I'm sure there's some other smaller kind of projects mixed in with that, whether they be ammonia or bone of your work, or we're starting to see some resurgence in the mining space. We're certainly seeing some activity starting to raise its head around power generation opportunities, whether that's the installation of power gen equipment or fueling and storage associated with that. So I think it's a pretty big mix, but I would say probably the bigger projects are those that are tied into LNG to some extent.

Got it. Got it. And one last question because you mentioned this often enough on the conference call. So I'm always curious to hear your updated thoughts. You always talk about inorganic growth opportunities sometime in the future. I'm wondering if you're whether you could put a timeline to that and what kind of targets you'd think about. Just maybe a little bit more color on inorganic growth opportunities?

Yeah. I mean, we've also said that, you know, we are principally focused on our return to profitability, return to continue to book work, to drive a strong backlog, to get to the run rate that supports our business on the top line. It's gonna drive everything below it. And so that's been our principal focus. I think as we move, what we see going on in the markets, our ability to add that strength into our business both from a projecting and engineering capabilities is important. While we work all over the country, and we work across both union and nonunion markets, the ability for us to strengthen regions of the country where we see a lot of investment could be also an important part of that. So I, you know, today, I'm not really in a position to give you specifics on what we're exactly looking for, but at a high level, I think where we see the market's going and what's good to continue to strengthen our business and to strengthen our position as a specialized E&C provider of services and to take advantage of infrastructure spending both from an energy power and industrial infrastructure basis, I think there is a lot of opportunity there for us to play a key role. So that's, I didn't totally answer your question, but that's kind of where my head's at.

I realized it's hard to do because it's in the future, but I just wanted to get some updated thoughts. Thank you, sir.

Thank you. And as a reminder, to ask a question, please press star one one on your telephone. I'm not showing any further questions in the queue at this time. I will now turn the call back over to Kellie for any closing remarks.

Thank you. A reminder, if you'd like to have a conversation with management, please contact me through the Matrix Service Company investor relations website. You may also sign up to receive MTRX news by scanning the QR code on your screen. Thank you for your time.

This concludes today's conference call. Thank you for your participation, and you may now disconnect.