Matrix Service Co Q2 FY2026 Earnings Call

Good morning, and welcome to the Matrix Service Company conference call to discuss results for the second quarter of fiscal 2026. 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, Victor. Good morning, and welcome to Matrix Service Company's Second Quarter Fiscal 2026 Earnings Call. Participants on today's call include John Hewitt, President and Chief Executive Officer; and Kevin Cavanah, Vice President and Chief Financial Officer. Following our prepared remarks, we will open up the call for questions. The 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 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 results 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. The 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 as the prior year, unless specifically stated. As we open today's earnings call, let's take a brief moment to focus on what matters most, keeping ourselves and each other safe. With about six weeks to go before the official start of spring, this winter has already brought a range of extreme weather across the country from blizzards and ice storms to record-breaking cold snaps and heavy rainfall. These conditions disrupt daily life and create serious safety challenges for everyone, especially those working outdoors. But the challenges go beyond just physical safety; shorter days and colder temperatures take a toll not just physically, but mentally and emotionally. Challenges to mental health are as real and as important as physical risk. This is especially true for those in construction and field work, where teams often face harsh outdoor working conditions and are also far from home and their personal support networks, all of which can lead to increased stress, fatigue, and isolation. That said, regardless of where we work, it's important to take time to check in with ourselves and those around us. Watch for signs of stress, start a conversation, listen, and offer support. When we look out for one another and use the resources available, we help keep our teams and workplaces safe, healthy, and strong. If you or a colleague needs help, reach out to someone you trust or use the support resources available. Let's keep safety, both physical and mental, at the forefront, especially during challenging times. Together, we can make sure everyone goes home safe every day. I will now turn the call over to John.

Thank you, Kellie, and good morning, everyone. Before we address our second quarter results, I want to highlight important developments announced yesterday regarding our succession planning at Matrix. Over the past year, Matrix has focused on actively advancing our strategic objectives and our leadership succession plan while continuing to evolve our organizational structure to support long-term growth and success. As you might recall, as part of this effort, Sean Payne was promoted to President of E&C in May of 2025. Yesterday, in our leadership transition release, we announced that Sean has now been elevated to the Chief Operating Officer of Matrix. And then per our succession plan, I will step down as President and Chief Executive Officer on June 30, 2026. At that time, Sean will assume the role of Chief Executive Officer, ensuring a seamless leadership transition. I've worked alongside Sean for nearly 30 years, first at a previous employer and later by recruiting him to Matrix in 2012. Sean is a proven leader with exceptional operational expertise and unwavering commitment to our people and our stakeholders. He has been instrumental in the growth of our backlog, our business turnaround, organizational streamlining, and strategic planning, and he will actively participate in future calls and investor meetings throughout this transition period. I'm confident in Sean's leadership, and I'm excited about the future of Matrix as well as our market strength and the unprecedented generational infrastructure investment underway across the country. Now moving on to second quarter results, which reflect continued positive execution across our business and culminated in revenue growth of 12% compared to the second quarter of last year. And while our underlying results for the quarter reflect strong growth and solid execution, we did record an unfavorable adjustment related to warranty responsibilities and miscellaneous subcontractor and vendor commercial items we are working to resolve on a substantially complete storage project. EPS was a loss of $0.03 for the quarter, which included the negative $0.13 impact from this issue. Kevin will discuss this in more detail during his comments. That said, given our overall positive execution, current backlog of $1.1 billion and projects already in flight, we are reiterating our full-year revenue guidance of $875 million to $925 million and we expect to achieve profitability in the second half of the year. Turning to awards, project awards during the second quarter were approximately $177 million, resulting in a book-to-bill ratio of 0.8. The overall volume of project awards has been tempered due to uncertainty around trade policy, permitting, and the government shutdown that occurred in late 2025. This uncertainty has delayed FIDs and award progression on many projects in our specific market pipeline. While this will likely persist through the end of this fiscal year, it does not represent a fundamental slowdown in our end market demand. In fact, our overall opportunity pipeline continues to expand, increasing to $7.3 billion at the end of the fiscal second quarter. As we gain more brand recognition and momentum in the power and data center infrastructure market, this will further add to the pipeline in future quarters. Now I want to step back and provide a clear overview of the macro environment we are operating in, our strategic response, and our outlook for the future. Matrix and our entire sector has experienced a once-in-a-generation surge in demand for critical energy, power, rare earth, and industrial infrastructure. Companies like Matrix with proven expertise in safely delivering complex projects on time and on budget are essential to addressing the nation's vast infrastructure needs. We firmly believe we are still in the early stages of this transformative build-out. The shortage of reliable, cost-effective power generation has steadily intensified nationwide, and the surge in demand from AI data centers, which require continuous and substantial power, has only compounded this issue. Demand for natural gas, widely recognized as the essential bridge fuel for a cleaner energy future, has soared by over 100%, while pipeline capacity has grown by only 50%. At the same time, the onshoring of manufacturing, electrification of devices, transportation, and equipment are increasing electricity needs. The United States is now critically short of affordable, reliable electric generation, most of which depends on natural gas, an abundant energy source in North America. Crucially, the global race for AI dominance hinges on electricity availability. Governments increasingly recognize that this is not merely a matter of business efficiency or quality of life, but at its core, a national security imperative. Today, the urgent need for affordable, reliable power and connectivity and the fuels that enable them has ignited an unprecedented investment cycle backed by strong political resolve. In addition to power generation and electrical infrastructure, we're seeing a compelling multiyear opportunity in mining and minerals. The push to onshore and secure critical and rare earth material supply chains in the U.S. is accelerating investment in mining, processing, and associated infrastructure, signaling the early stages of a new multiyear upcycle in project demand. This generational investment cycle has had a direct impact on wages, productivity, and a growing domestic manufacturing base that, combined with federal fiscal and tax policy changes as well as private and public investment, will continue to drive a positive economic environment and GDP growth, all of which will create positive tailwinds for our industry. Against that backdrop, Matrix is especially well-positioned as a leading end-to-end EPC general industrial contractor that designs, builds, and maintains critical energy, mining, and industrial infrastructure. We possess market expertise, specialized capabilities, resources, relationships, and a proven track record to deliver comprehensive, high-quality services safely. Matrix meets these standards and is exceptionally well positioned to benefit from this opportunity. Over the past five years, Matrix has proactively transformed our organization to meet these challenges and capitalize on the opportunities ahead. We have strategically exited non-core businesses, invested in our people, systems, and processes to strengthen our core expertise in energy, power, and industrial projects. We have streamlined our operations to deliver on our purpose and value proposition to all stakeholders. As a result, we have built a business positioned at the intersection of powerful macro growth drivers, one that will deliver sustainable and profitable growth for years to come. Our recent project awards, including those secured this quarter and a robust pipeline in LNG facilities, power generation, electrical connectivity, substation, mining, and minerals underscore the strategic evolution of our business. While we continue to serve traditional energy and industrial clients, our future growth and sustainable performance are firmly anchored in this generational investment cycle. This quarter, for example, we secured the LNG storage component for the first phase of a peak shaving facility in the Virginia AI corridor, additional storage to support two gas-fired generating facilities in the Southeast, and multiple smaller strategic electrical connectivity projects in the Northeast, which is ground zero for this huge data center investment cycle. Subsequent to the end of the quarter, we were awarded the FEED study and are currently developing the full scope of work for a Midwestern utility to provide them the ability to run dual fuel on two of their gas-fired power facilities. We are frequently asked about our role in power generation and delivery and, more specifically, about our role in supporting data centers and advanced manufacturing facilities. So I want to take a few minutes to share with you at a high-level overview of the work we do supporting these critical growth markets. Matrix has a strong legacy in power generation and power delivery. This includes simple and combined cycle plant construction, centerline erection, HRSG erection, balance of plant mechanical and electrical work, as well as construction of greenfield substations and brownfield substation upgrades, including grid interconnects. This, together with our expertise in both LNG peak shaving and backup fuel facilities, provides our clients with the integrated solutions needed to meet existing and increasing demand for electricity to power homes and businesses, including data centers, stabilize the grid during peak periods, and ensure reliable operation during emergencies. This same expertise is needed by data center developers, OEMs, owners, and others who are pursuing their own energy infrastructure to ensure reliability and redundancy in their operations. In short, Matrix does not build the data center or advanced manufacturing facility. However, we do build the critical energy infrastructure needed to power them. Through both organic and inorganic growth, Matrix is positioned to accelerate its momentum as a critical provider of the services demanded by this massive infrastructure build-out. Our momentum is fueled by the steady conversion of opportunities into awards and those awards into revenue, all executed by the business we have purposely built for this moment. In summary, I'm proud of the team's continued execution as we proceed through this critical chapter of growth for Matrix. We have plenty of opportunities ahead, and I'm confident that our focus on our core pillars of win, execute, and deliver will drive compounding profitable growth and long-term value for our shareholders and customers alike. I'll now turn the call over to Kevin.

Thank you, John. Let's start with the results for the second quarter of fiscal 2026. Revenue was $210.5 million, an increase of $23.3 million or 12% over the second quarter of last year, driven by growth in all three segments with utility and power infrastructure accounting for over 60% of the increase. We expect to achieve our full-year revenue guidance of $875 million to $925 million on strong growth in the second half of the fiscal year, particularly in the fourth quarter. This growth will be driven by large LNG and NGL projects already underway in the Storage and Terminal Solutions segment. Consolidated gross profit increased 21% to $13.1 million in the second quarter compared to $10.9 million in the prior year. Second quarter gross margin was 6.2% as compared to 5.8% for the second quarter of fiscal 2025. Higher revenues resulted in improved recovery of overhead costs, and project execution was generally strong throughout the business. That said, costs associated with items arising during commissioning of a specialty tank project in the Storage and Terminal Solutions segment resulted in a $3.6 million reduction of gross profit during the quarter or about $0.13 per share. Adjustments to project cost estimates and therefore, direct margin, both positive and negative, are a normal aspect of our business, especially as we work to close out a project. During the course of the year, these variations generally net to a positive and improved direct margin across the portfolio, which we expect to occur this year as well. Year-to-date, the direct margin performance, including this issue, is above plan. As backlog converts to revenue and activity levels continue to ramp, if these types of project-level dynamics occur, we expect them to be absorbed more efficiently across the P&L, reducing quarter-to-quarter variability. Moving down the income statement, SG&A expenses decreased to $15.1 million in the second quarter compared to $17.3 million in the prior year. The 13% decrease is primarily due to cost reductions resulting from our organizational realignment and lower stock-based compensation expenses, which decreased by $0.7 million associated with the variable accounting for cash-settled awards as a result of fluctuations in our stock price. As we previously discussed, our ongoing SG&A quarterly run rate is about $16.5 million. As we return to profitable performance, that will be impacted by variable compensation expenses tied to earnings. We also incurred restructuring costs of $0.2 million in the second quarter, primarily facility-related costs. We will incur additional expenses in the second half of the fiscal year related to the CEO transition. Details of that CEO transition are included in Item 5 of the Form 10-Q, which will be filed this afternoon. The company generated $1.5 million of interest income in the quarter from a strong balance sheet that has been built up through effective working capital and contract management. For the quarter, the company had a net loss of $0.9 million compared to a net loss of $5.5 million in the second quarter of last year. EPS was a loss of $0.03 compared to a $0.20 loss in the prior year. Adjusted EBITDA in the second quarter improved $4.6 million to a positive $2.4 million compared to a loss of $2.2 million in the second quarter last year. Now moving to the operating segments, starting with Storage and Terminal Solutions, which represented 47% of consolidated revenue. Second quarter revenue was $99.9 million compared to $95.5 million last year. The growth was a result of an increased volume of work for LNG and NGL projects, partially offset by lower volumes for crude oil projects. We expect specialty storage projects, including LNG and NGL to drive robust growth for the Storage and Terminal Solutions segment as we move through the remainder of fiscal 2026. Storage and Terminal Solutions segment gross profit of $4.8 million represented a $2.5 million decrease in the quarter compared to the same period last year. The segment gross margin of 4.8% was lower than the segment gross margin of 7.6% last year. The decrease occurred due to the $3.6 million charge we previously discussed. We expect to see significant margin improvement in the remainder of the year based on expected project execution on our high-quality backlog and improved overhead cost recovery resulting from increased revenue levels. Moving on to the Utility and Power Infrastructure segment, which accounted for 36% of consolidated revenues. Second quarter segment revenue increased $14.3 million or 23% to $75.4 million compared to $61.1 million in the second quarter of fiscal 2025, benefiting from higher volumes of work associated with LNG peak shaving and power delivery projects. Segment gross profit of $7.2 million increased by $3.8 million or 112% in the second quarter compared to $3.4 million in the same quarter last year. The increase resulted from higher revenue and an improved gross margin, which increased to 9.6% compared to 5.6% in the same period last year. The margin increased due to strong project execution and improved construction overhead cost recovery as a result of higher revenues. Finally, the Process and Industrial Facilities segment accounted for 17% of consolidated revenue or $35.3 million in the second quarter compared to $30.6 million last year. We expect similar revenue levels until we capture additional project opportunities from the strong market and our expansion efforts. Segment gross profit was $1.2 million or 3.5% in the second quarter compared to $0.4 million or 1.2% last year. The current margin level is due to the mix of work, which is primarily lower-margin reimbursable activity and the low revenue level, which results in under recovery of construction overhead costs. Both issues should improve as the company captures additional revenue opportunities. Moving to the balance sheet and cash flow, cash increased by $7 million in the quarter, ending at $224 million as of December 31, 2025. The balance sheet and liquidity remain in a strong position, with liquidity of $258 million and no outstanding debt. We also expect to maintain our strong cash balance through the remainder of fiscal 2026 and have the financial strength and liquidity needed to support and grow the business. As we stated previously, the improvement in our consolidated revenue, combined with continued focus on execution excellence and leverage of our construction overhead and SG&A cost structures will allow us to return to profitability in the fiscal year and make significant progress towards the achievement of our long-term financial targets. That concludes our prepared remarks. So we will now open the call up for questions.

Our first question will come from John Franzreb from Sidoti.

I'd like to start with that onetime issue or the issue you called out, the $3.6 million in storage. I'm curious, is that bleeding into the current quarter? And is there any other large issues similar to that that we should be cognizant of?

No. I mean we think we've captured the issues associated there and that we would not expect anything leading, as you said, leading over into the third quarter. We think we've got our hands around what the issues are and a path to get them resolved.

And is there anything similar...

Nothing similar hanging around someplace else.

Okay. Good to know. You also called out in your prepared remarks the opportunity pipeline. It looks like it's up roughly 10% or $600 million from last quarter. What's driving that growth?

I don't have the statistics in front of me, but a lot of it is in the LNG and NGL markets. We're also seeing increased activity in mining, minerals, and electrical sectors. While those projects may not be as large, they are strategically important for the business.

Okay. Got it. And again, you did reference this in your prepared remarks about the backlog. I'm kind of curious, not only in aggregate, has the backlog kind of been weak the last couple of quarters, but also notably in utility, which I really thought would have been stronger. Can you kind of talk about what's going on in the overall marketplace?

Yes. We believe the award cycle has been somewhat subdued. Uncertainty in energy markets and challenges in the permitting process have contributed to delays in moving many projects from our opportunity pipeline to final investment decisions and awards. We are confident in the quality of the projects in our pipeline and anticipate winning our fair share. However, many projects are being pushed back into our prospect list due to permitting issues or client investment choices. While projects continue to shift between prospects and opportunities, we are actively tracking our pipeline on a monthly basis. Importantly, we are still securing smaller projects and maintenance work, which, although not reflected in the opportunity pipeline, remains a consistent revenue source of around $70 million to $100 million each quarter. We are dedicated to growing our maintenance operations and exploring new geographical areas for refinery maintenance and other activities. While we aim for significant book-to-bill metrics each quarter, there will be fluctuations, with some quarters likely falling below one. Overall, we feel positive about our position, and our book-to-bill ratio for storage this year is above one, reflecting strong bookings that constitute a significant part of our business.

So John, just a follow-up. Do you expect these awards to be moved to the right such that they're going to be awarded in the second half of the fiscal year? Or do you think they will be pushed into fiscal 2027?

I believe we've previously communicated that there are substantial projects available that will significantly impact our book-to-bill ratio in the upcoming quarter. We are well-positioned for these larger projects, which we anticipate will be awarded in fiscal '27, starting July 1. However, we expect to see some strategic and smaller awards in the next two quarters. It’s unlikely that we will conclude the quarter with a collective book-to-bill ratio exceeding 1.0 across the business, though we will continue to observe a strong book-to-bill performance in various segments.

Our next question will come from the line of Brent Thielman from D.A. Davidson.

John, maybe just to follow up on the conversation about all the things you can do around data centers. I sort of bundle things you can do directly on those sites with the power component of that as well, which just seems to be sort of feverish demand here. Why wouldn't that be more influential to your bookings here in the next few quarters, just given the appetite and the fact that you have these capabilities that seem to be in the sweet spot of that?

Yes, that's a great question. We have been focused on that market for over the last 12 months, recognizing the significant spending there. Many of these clients are new to us. We have experience in power generation and have built notable power plants. Our expertise in electrical connectivity is mainly in the Northeast, along with backup fuel capabilities. We are entering that market and need to promote our experience while building relationships with the clients. We are understanding how to compete and succeed. We are beginning to see the results of our business development and operations team's efforts. As mentioned in our prepared remarks, I believe we will see growth in our opportunity pipeline as we get the chance to bid on certain projects. We are already bidding on electrical infrastructure projects, including new substations connected to data center power needs. I hope we can add some of these to our backlog in the latter half of the year. We are collaborating with EPC power plant constructors, providing our services in various aspects like turbine installation, mechanical work, electrical work, and boiler erection. We have the necessary capabilities and skills. I feel we are making progress in these markets, and we expect to see a positive impact on our opportunity pipeline and, to some extent, on our award cycle this fiscal year. The growth will become more apparent as we move into 2027.

Appreciate that, John. Any thoughts on the midstream side? I mean as you talk about all the demand around gas power coming, I mean it's becoming pretty evident with some other companies. Are there things that you're starting to see in the midstream arena pop up for you that could also be an opportunity?

So when you say midstream, are you talking about crude oil or are you talking about gas?

Yes.

Yes to both. I believe the crude market is relatively quiet. There are some new tanks being constructed, and tank maintenance is ongoing, which we handle. Our storage resources have become more concentrated on the specialty vessel projects we are undertaking, as they involve more complex construction and offer better margins with less competition. While we continue to provide services in crude storage and midstream operations, this segment has gradually diminished in terms of revenue contribution. There is activity in this area. On the natural gas front, we have a strong position in gas storage for LNG and NGLs, both in terms of storage capabilities and balance of plant construction for those facilities, whether for utility connections or fuel purposes. I see the level of activity related to gas as strong and improving. However, there are many permitting challenges. As mentioned in our prepared remarks, there are numerous pipeline issues in the market due to these permitting difficulties. Companies are hesitant to invest funds when they're uncertain about securing permits. One project we announced last quarter involves constructing the balance of plant for an NGL facility, for which we're also building a storage tank. We anticipated more revenue for this project in the second quarter, but permitting delays have shifted our ability to generate revenue to the latter half of this fiscal year. The project is underway, we are beginning to receive permits, and we're making progress. However, these permitting issues are affecting many players in the midstream market.

Okay. And then you did mention minerals and mining. Obviously, critical materials have become more topical here lately. Could you share your positioning there and help us size the opportunity for you?

Yes. We have a longstanding history in mining and minerals. In the past, we operated in Arizona and collaborated with major miners when the market was stronger. However, that market declined, and while we've maintained a presence from a sales perspective, we haven't done much work. Now, the market is rebounding significantly with copper, rare earth minerals, and gold. We're finally seeing more opportunities come to fruition, and we currently have a few promising projects that we're bidding on in the mining and minerals sector. We believe our brand remains strong in this area. We're working on rebuilding relationships, and I see a genuine opportunity for us. In addition to the rising demand for nonferrous metals driven by ongoing infrastructure developments, the federal government is also investing in rare earth minerals to ensure national security by securing these resources domestically. There are many favorable conditions in this market, and I believe we have the experience and connections to fully capitalize on it.

Okay. And just last one, guys. I appreciate you taking all these questions. I think about the outlook for the rest of the year, the return to profitability you're anticipating and what seems to me like a lot of green shoots here in the business, notwithstanding some of the uncertainty in some of your markets here in the short term. You've got a lot of cash on the balance sheet. I mean, John, just to refresh on buybacks, why wouldn't they make sense here? It just seems like business is heading in the right direction. Could you update us on your thoughts there?

I believe we've consistently mentioned our goal of returning to profitability. We have cash available on our balance sheet and will continue to ensure we are spending our capital wisely within our operations, as there's some catching up to do in that area. We're also exploring inorganic opportunities that can enhance our business offerings. If we cannot identify suitable inorganic opportunities, we may choose to initiate share buybacks. All of these options are under consideration. As stated in earlier calls, our focus is on driving the business back to profitability as we aim to succeed, execute, and deliver. As we progress, we will seek additional ways to utilize the cash we have on hand.

We have a follow-up question from John Franzreb from Sidoti.

Yes. I'm just curious about the competitive landscape. Are new jobs being written at target margins? Or is there pressure in certain end markets versus others? On the flip side of that, are some being written at above target? Can you just talk a little bit about that?

Yes. I mean the work that we're booking on a collective basis is falling within our targeted margin ranges. So I would say we're not experiencing the same pressure we saw three years ago when contractors were out chasing projects and driving margins to the bottom. We're not experiencing that.

And any of the markets above target margins at all?

Yes. I mean it depends on which piece of our business. Some pieces will get a higher margin. Some of the bigger jobs, sometimes we're able to get a higher margin. We've talked about a margin range of 10% to 12%. Some pieces of our business are in the high end of that range; some are a little bit above. Maintenance activities are certainly at the lower end of those margin ranges or even below. But the portfolio overall, I think the margin ranges in the backlog are well within our expected range.

I'm not showing any further questions in the queue. I'd like to turn it back over to Kellie for any closing remarks.

Thank you. As always, our approach is to be open and transparent with our investors. As such, I would like to invite anyone interested in having a conversation with management to contact me through the Matrix Service Company Investor Relations website. You can also sign up for MTRX News by scanning the QR code on your screen. Thank you so much for your time.

Thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone, have a great day.