Earnings Call Transcript - MTRX Q3 2024

Operator, Operator

Good morning, and welcome to the Matrix Service Company Conference Call to discuss results for the Third Quarter of Fiscal 2024. Currently all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and 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.

Kellie Smythe, Senior Director of Investor Relations

Thank you, Justin. Good morning, and welcome to Matrix Service Company's third quarter fiscal 2024 earnings call. Participants on today's call include John Hewitt, President and Chief Executive Officer; and Kevin Cavanah, Vice President and Chief Financial Officer. The presentation materials referred to during the webcast today can be found under Events and Presentations on the Investor Relations 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 due to various factors including those discussed in our most recent annual report, 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. Related to investor conferences and corporate access opportunities, Matrix will be participating in the upcoming Stifel Cross Sector Insights Conference on June 4th and 5th in Boston. If you would like additional information on this event or would like to have a conversation with management, I invite you to contact me through the Matrix Service Company Investor Relations website. Before I turn the call over to John, I would also like to share our safety moment. At Matrix, there is nothing more important than the safety and health of our employees, both physical and mental, and that's why safety is our number one core value. On our last call, John highlighted the work being done across our industry and at Matrix to identify and provide support for addressing mental health issues, especially given the significantly higher level of suicide experienced in the construction industry when compared to others. But mental health issues are something we all grapple with at one time or another in our lives. As the month of May is Mental Health Awareness Month, we thought it would be a good time for a reminder that each of us should periodically take time to assess our own mental health, just as we do our physical health. In doing so, it's important to identify the root causes of any issues we may be experiencing and above all, remember, it's okay to ask for help. At Matrix, our people are our greatest asset. By ensuring the mental and physical well-being of our people, we are better equipped to do the important work our customers and shareholders count on us to deliver. I will now turn the call over to John.

John Hewitt, President and Chief Executive Officer

Thank you, Kellie, and good morning, everyone. We delivered mixed third-quarter results. Execution performance was good. We maintained our record backlog. The opportunity pipeline continues to be strong, and liquidity expanded. However, revenue was a low point for the year driven by the convergence of three key issues. First, the conversion of backlog to revenue on some of our major projects continues to push to the right. This shift does not represent uncertainty in the projects proceeding, but it does highlight the complexity of finalizing large capital construction project contracts and the impact our clients have on the timing of those project starts. We expect these projects to begin contributing additional revenue in Q4 and grow in a more meaningful way throughout fiscal year '25 and beyond. Second, a long-term multi-decade refinery client changed its spending priorities and contracted labor demand in the third quarter and for the balance of the current contract. Finally, there were two areas of softness in our core markets: crude tank new builds and maintenance and repair in the Lower 48 as well as electrical infrastructure in our predominantly Northeast sector. In both cases, we believe this softness is transitory and will begin to firm up moving into fiscal '25, given the market dynamics and how we approach those markets. In short, we expect revenue to improve from here and continue to build through fiscal 2025. As this increased volume of projects and backlog, and new awards convert to revenue, we expect to drive improved fixed cost absorption and margin expansion toward our historical double-digit levels. Backlog in the third quarter increased nearly 75% on a year-over-year basis, and we held our all-time high of $1.45 billion driven by a diverse mix of high-value multiyear projects that will support improved profitability moving into fiscal 2025. Our backlog bookings and bidding activity remained very strong as we enter the fourth quarter, which has already produced additional specialty vessel storage bookings. This is also our 11th consecutive quarter with a book-to-bill greater than or equal to one, led by robust demand within our Storage and Terminal Solutions segment where book-to-bill was 2.5 in the third quarter compared to 1.3 a year ago. We continue to maintain strong bidding discipline consistent with our strategic focus on profitable organic growth. Our opportunity pipeline clearly supports the long-term trend to maintain a strong backlog. While the financial impact of the timing of project starts is a reality for our industry, it is important to keep in mind that the work will get built and that the underlying demand thesis remains unchanged. Matrix is in the right markets at the right time with the right expertise and strategy to drive value creation for our shareholders. I'll ask Kevin to provide more detail around the third quarter results, and then I'll provide more color on our outlook for the business entering fiscal 2025 and why we remain confident that our business is moving toward a positive inflection of profitability over the coming quarters.

Kevin Cavanah, Vice President and Chief Financial Officer

Thank you. As John indicated, the results for the third quarter were mixed. Project awards and backlog were in line with our expectations. We generated awards of $187 million in the quarter, and a book-to-bill of 1.1. The most significant award was another large specialty tank project. This increased backlog in the Storage and Terminal Solutions segment to $738 million, a new record high, and an increase of 150% versus the prior year period. This also allowed us to maintain our consolidated backlog at a record high of $1.45 billion. While our backlog continues to strengthen, it has taken longer than previously anticipated for our consolidated operating results to improve. Total revenue was down to $166 million, an 11% decrease compared to the prior year period. We anticipate revenue improvement as we move from the third quarter into the fourth quarter. We've previously discussed that the growth in our backlog has been fueled by long-term construction projects, which have an inherent lag between the time a project is awarded and when it begins to have a material impact on revenue. While these contracts make up a significant portion of the backlog, the contribution to revenue has been minimal in fiscal 2024. We expect the Storage and Terminal Solutions and Utility and Power Infrastructure segments to drive growth as we move forward. Our gross margin in the third quarter was 3.4%, up 100 basis points over the same period a year ago. Our third quarter performance would have been almost 600 basis points higher on gross margin rate but for two factors. First, low revenue resulted in under-recovered construction overhead which negatively impacted gross margins by almost 400 basis points. Second, we were impacted by reduced labor demand and turnaround services in the final year of a three-year refinery maintenance contract, which is currently up for renewal. The accounting for this change was applied retroactively over the life of the contract and therefore, impacted our consolidated margin by 200 basis points in the quarter. Moving down the income statement, SG&A was $19.9 million in the quarter. We continue to benefit from organizational efficiencies achieved over the last several years. However, stock compensation expense increased by $2.5 million in the quarter due to a 33% increase in the stock price. This expense increase is related to cash-settled stock awards issued in previous periods. Expense associated with these awards is variable and fluctuates with changes in our stock price. For the third quarter of fiscal 2024, we had a net loss of $14.6 million or $0.53 per fully diluted share. As previously discussed, the primary driver of the loss was the low revenue, which is expected to increase. Moving to the operating segments, in the Storage and Terminal Solutions segment revenue was $54 million in the third quarter as compared to $52 million in the prior year period. We expect higher revenue as we move forward and into fiscal 2025 as large specialty storage project awards transition through contracting, engineering, project planning, and into field construction. Gross margin was 4.3% in the third quarter, an increase of 590 basis points over the prior year. This increase relates to strong project execution throughout this segment, including specialty storage projects, allowing a return to double-digit direct gross margins. However, both periods were impacted by under-recovered fixed costs due to low revenue. In the current quarter, this negatively impacted gross margins by almost 700 basis points. Revenue is expected to increase in this segment beginning in the fourth quarter, significantly reducing the impact from under-recovered overheads. In the Utility and Power Infrastructure segment, revenue was $46 million in the third quarter compared to $35 million a year ago. Segment revenue is beginning to benefit from the start of previously awarded LNG peak shaver projects, which we expect to increase as we move forward. The power delivery portion of this segment is currently experiencing a softer market in the Northeastern geographic area we serve. Gross margin was 3.1% in the third quarter compared to 8% in the prior year quarter. The peak shaver proportion of the segment is producing strong gross margins, but that is offset by softness in the power delivery business as well as under-recovery of production overhead costs. This under-recovery impacted gross margins by 550 basis points and is temporary as the backlog is expected to drive higher revenue in this segment beginning in the fourth quarter. In the Process and Industrial Facilities segment, third-quarter revenue was $66 million compared to $100 million in the third quarter of fiscal 2023. The revenue decline is due to a couple of factors: completion of a gas processing project in the prior year and lower refinery maintenance revenue as a long-term refinery maintenance customer has reduced labor demand and turnaround services. The company is also scheduled to complete a renewable fuels project in the fourth quarter, which has been a good contributor to segment results throughout the fiscal year. We expect revenue to decrease on both a year-over-year and sequential basis as certain existing projects near completion and we await the start of new projects both in backlog and in our opportunity pipeline. The segment gross margin was 2.7% in the third quarter compared to 3.2% in the prior year quarter. The current year quarter was impacted by a change related to the refinery maintenance contract in the prior year quarter impacted by the completion of a challenging gas processing project. Now let's discuss the balance sheet and liquidity. We continue to have a strong balance sheet with cash and credit facility availability of $135 million. During the quarter, we generated $25 million in cash flow from operations. We also utilized $4.8 million for capital expenditures, the majority of which was used for the purchase of a fabrication facility. As of March 31, 2024, we are in a net cash positive position with no outstanding debt. We will continue to proactively manage the balance sheet to support the improvement of the business. Before I turn the call back to John, I think it is important to note that overall project execution is strong and the earnings improvement expectation we have been talking about remains intact and is just taking the revenue ramp longer to materialize. That ramp is supported by backlog consisting of several multiyear quality projects, strong markets, and a robust opportunity. I will now turn the call back to John.

John Hewitt, President and Chief Executive Officer

Thanks, Kevin. In the fourth quarter and fiscal 2025, we expect to see improvement in top and bottom line results as projects currently in backlog begin to benefit revenue. Together with our work to streamline the company, Matrix is well positioned for material improvement in revenue and profitability. As I said in my opening remarks, we are in the right markets with the right expertise and strategy to drive value creation for our shareholders. Matrix is benefiting and will continue to benefit from several megatrends that create demand for infrastructure in the end markets we serve, all of which present a long runway and multibillion-dollar project opportunity pipeline. The clean energy transition and demand for lower carbon solutions require infrastructure supporting LNG, ammonia, hydrogen, and other renewable fuels. This is an area where Matrix is recognized as a leading engineering and construction company and one of the very few with the cryogenic expertise needed to complete this complex infrastructure. The need for system reliability and resilience is also driving demand in the utility and electrical infrastructure space for the use of LNG in both peak demand and backup fuel, as well as transmission and distribution substation and other system upgrades. Our electrical infrastructure expertise provides significant opportunity for organic growth in high voltage transmission, distribution, and substation project work, as well as industrial electrical projects. The expansion of this business is a key organic growth initiative for our organization and is already gaining traction with expanded clients, opportunities, and geographies. An important near-term demand driver for such projects is data center growth, which is creating substantial incremental electricity load increases. Nearly half of all planned U.S. data center investment is concentrated in unregulated markets such as California, Texas, Virginia, New York, Florida, and Illinois. Current industry expectations are for further geographic dispersion of data center investment over time as the data center permitting process becomes more forgiving across regulated markets. Given our current electrical infrastructure footprint, which is concentrated in the Upper Mid-Atlantic and Northeast, we are well positioned to benefit from incremental data center load growth and the resulting infrastructure investment needs in this geography, specifically related to substations, transmission, and distribution. We're also currently cultivating and developing a relationship with data center clients or electrical opportunities in this space will allow us to expand into new geographies. Global geopolitical instability, the need for energy supply assurance, and low-cost feedstock to support manufacturing and other end markets are all creating ongoing demand for hydrocarbon-related infrastructure associated with oil, gas, and natural gas liquids, such as ethane, ethylene, butane, and propane. As mentioned earlier, all these megatrends have long runways and are expected to drive infrastructure investments for the foreseeable future. Our leading position as a solution provider supporting these infrastructure investments provides us with greater visibility, and it positions us for consistent, profitable growth moving forward. Breaking it down further, let me add more color and highlight near-term opportunities in just a few of our end markets. We have the unique ability to bring together the cryogenic storage and balance of plant infrastructure under one brand name, which is valued by our clients. Currently, a significant part of our backlog is comprised of projects that support growing demand for LNG and NGLs. In the utility and power industry, small to mid-sized peak shavers are an increasingly critical component for ensuring system reliability and resilience. They allow gas utilities to meet increasing demand resulting from both community and industrial growth, as well as peak demands during severe weather events. They provide a means for supply in remote locations with energy and addressing areas restricted by a lack of natural gas pipelines or bottlenecks in existing pipeline infrastructure. And finally, they allow utilities to buy gas at lower spot prices during periods of decreased demand and store for future use. LNG bunkering facilities and other supply chain infrastructure are integral to the lower carbon and clean energy transition, specifically in the maritime industry. The International Maritime Organization of 2023 strategy on the reduction in greenhouse gas emissions from ships means that more and more commercial vessels, such as container and cruise ships, are being converted or built to run on LNG, creating increased demand for bunkering facilities. This lower carbon fuel is also being used in heavy transportation, such as rail and trucking. Small to mid-scale LNG facilities have also been an attractive investment for companies entering the energy market as third-party suppliers to both utility and maritime organizations and to individual companies in aerospace, rail, and trucking for their own use. In addition to significant projects already in backlog, our teams are actively monitoring more than 13 near-term LNG projects. These opportunities include small to mid-scale facilities as well as infrastructure upgrades and replacements. In NGLs, our teams are currently working on multiple infrastructure projects that support ethane, ethylene, and other NGLs, and we expect to book several additional awards for NGL projects in the next couple of quarters. Beyond these near-term awards, we continue to see significant infrastructure opportunities supporting both domestic and international demand for NGLs as the U.S. has become the global low-cost stable producer of these hydrocarbon byproducts. Currently, our teams are actively monitoring 17 near-term NGL projects. We've also seen an increase in project opportunities supporting the storage, processing, production, loading, and distribution of hydrogen and hydrogen derivatives, such as ammonia from natural gas and other feedstocks. Overall, our opportunity pipeline remains strong at $6.1 billion, a key indicator of the strength across all of our end markets and our ability to continue our long-term trend of backlog stability and growth. While projects move in and out of our pipeline based on the decisions made by owner-operators as well as other factors out of our control, in general, the projects we are currently monitoring are expected to be bid and awarded within the next 18 months and on average, represent projects that will require an 18- to 30-month timeframe to deliver. Over half of the projects in our opportunity pipeline support specialty vessels, storage, and terminal services. In summary, as the current infrastructure investment cycle continues to gather momentum, we remain highly optimistic and believe we are uniquely positioned to drive continued growth while creating long-term value for our shareholders. I now open the call for questions.

Operator, Operator

Thank you. One moment for our first question. Our first question comes from Brent Thielman from D.A. Davidson. Your line is now open.

Brent Thielman, Analyst

Hey, thanks. Good morning, John, Kevin, Kellie.

John Hewitt, President and Chief Executive Officer

Good morning, Brent.

Brent Thielman, Analyst

Yes, first question is just on the outlook for process and industrial facilities. How long do you think some of the softness in the business results will persist before we start to see a return to growth? And what might drive that, John?

John Hewitt, President and Chief Executive Officer

So it's on process industrial facilities. First of all, we've got some good backlog already. There's a significant project that was awarded, I think it was in fiscal '23, that will start here mid-fiscal '25. That will drive it. And then when you look at the funnel of project opportunities, PIF, there are really good opportunities across the board now. So how quickly do those get awarded? I think we're looking at a short-term period where that segment is not growing, but then longer term, I think the prospects are strong.

Brent Thielman, Analyst

Okay. And I guess just taking this all in, if we think about the shorter term. Does some of the moving pieces in that business group now impact sort of your view of the return to profitability in the fourth quarter or maybe a return to positive EBIT just given what seems to be the opposite in some of the business groups that seem to be ramping up?

John Hewitt, President and Chief Executive Officer

Yes. The shift in revenue from one period to another has altered our expectations for the fourth quarter, but it hasn't impacted our long-term outlook. For the fourth quarter, we anticipate strong revenue growth in the Storage and Terminal Solutions segment and the Utility and Power Infrastructure segment. As mentioned earlier, the Process and Industrial Facilities segment is expected to decline, but this will be offset by growth in the other segments. Therefore, we believe the fourth quarter will show strong sequential growth compared to the third quarter, returning to the levels we experienced in the fourth quarter of last year. As for achieving profitability in the fourth quarter, we may not reach it fully, but we expect to make significant progress towards it. Looking ahead to fiscal '25, we anticipate continued revenue growth in these two segments. We’re still aiming for profitability in '25, potentially in the first half of the year, but whether that will be in the first or second quarter is still uncertain.

Brent Thielman, Analyst

All right. That's helpful. Maybe just the last one, I guess I want to come back to this, John. The recent trends in the electrical portion of the utility business sort of seeing counter to what the demand is or could be as you sort of indicated in your remarks. Any sense from customers what's happening there right now? And when that actually becomes more of a tailwind for that piece of the business?

John Hewitt, President and Chief Executive Officer

Yes, I have a few comments on that. If you've observed some of our larger competitors in the market, you might have noticed some softness at the start of this calendar year. For us, this is likely more impactful due to our smaller geographic presence. We have seen changes in spending patterns among our core clients in this area; it's not so much that there are fewer project opportunities, but rather that the size of these projects has diminished. This situation opens the door for increased competition. We are being very strategic about our project pricing, ensuring it aligns with our expected returns. We are also taking steps to broaden our client base by engaging with clients we've worked with only minimally before, who now have a greater volume and quality of projects available. Additionally, this situation isn't unique to us. In our 20 to 25 years of operating in this field, we've experienced cyclical trends in the utility market. We are currently in a downturn, reminiscent of what we faced after Hurricane Sandy, where local clients invested heavily in repairs and upgrades, leading to a noticeable decrease in their spending activities. It's unfortunate, but at the same time, we have major projects being delayed, which, as I mentioned earlier, is contributing to downward pressure on our revenue for the third quarter. However, we are confident that these trends will reverse in the upcoming quarters.

Brent Thielman, Analyst

Okay. I appreciate. I'll get back in queue.

John Hewitt, President and Chief Executive Officer

Thank you.

Operator, Operator

Thank you. And one moment for our next question. And our next question comes from John Franzreb from Sidoti & Company. Your line is now open.

John Franzreb, Analyst

Good morning guys. And thanks for taking the questions. I'd like to start, John, where you just left off. I'd make sure I understand this. The cyclical downturn you referenced in the electrical utility market, that's a quarter or two phenomenon? Or are you saying that it may be longer in duration than that?

John Hewitt, President and Chief Executive Officer

I believe we are currently experiencing the situation. We noticed some weakness earlier, but we remain optimistic about the opportunities available to us. As we encounter these cycles and downturns, we need to modify our market approach, recognizing that recoveries do not happen instantly. We are taking steps to grow our presence in the Northeastern region and broaden our client base. While we might not see changes in our existing client spending until their cycle improves, we are adapting our strategies and identifying which segments of the market to focus on.

Kevin Cavanah, Vice President and Chief Financial Officer

I think one of the things to remember when we're thinking about timing on electrical and the power delivery work is that we're also moving into the summer months, and the summer months can often be a time when our customers will be naturally spending less just because it's peak power demand.

John Franzreb, Analyst

Right. Makes sense, Kevin. And in regard to the large projects that are shifting to the right, I'm curious if there's any commonality on why they are being delayed. Have you seen anything along those lines?

Kevin Cavanah, Vice President and Chief Financial Officer

No. The commonality is probably in the process of getting from an award to contract completion and getting into a position to be able to start, whether that's their internal governance processes, whether that's a review of scope in those projects, and, in some of those projects, getting to contract completion has also been an additional scope for us. It feels like there's a phenomenon happening that's different than pre-COVID, where the amount of time it took to get from an award to a final contract for us has gotten longer. I'm not sure what that is or why that's happened. But the projects, the major projects, we have a backlog. They are solid projects. They're going to go. They're approved by our clients' Board of Directors. There's no risk there; it's just the timing to get through that contracting process has just gotten longer.

John Franzreb, Analyst

Okay. All right. That's good to hear. In regards to the service contract that was renegotiated, I believe you said it was a 200 basis point hit to segment gross margin. Is that a one-time hit as it's been retro priced? How should we think about that on a go-forward basis?

Kevin Cavanah, Vice President and Chief Financial Officer

I believe that had a 200 basis point effect on consolidated margins, with a more significant impact on the Process and Industrial Facilities segment. You should view this as a one-time adjustment; moving forward, the margin will be slightly lower. The main influence this quarter was due to the changes made to this three-year contract, of which we are now in the last year. We have adjusted the margin we recognized on prior revenue, which aligns with our approach to accounting for long-term contracts and the construction percentage of completion method.

John Hewitt, President and Chief Executive Officer

Hey, John, something else there. This is not an execution issue, it's not a relationship issue with the client, it's not a performance issue for them. This work is fundamentally reimbursable work over a three-year period. For whatever reason, our client is contemplating and making some changes on how they are going to spend their dollars in their maintenance activities and turnaround activities, and they make that change, and we get caught up in it. That's what has led us to reevaluate the size of the entire three-year period of that contract. As Kevin said, we had to make an accounting adjustment because of that.

John Franzreb, Analyst

Okay. Thanks for that color, John. And I guess one last question, I'll get back into the queue. Can you talk a little bit about any potential cost savings or restructuring actions or levers that you could still pull out there as you continue to work your way back to profitability?

John Hewitt, President and Chief Executive Officer

Right. We continue to manage our cost structure and find balance between what we have in backlog and the timing of that. We know about the timing of it. What's in our opportunity pipeline and the commitments we're making to clients for those projects. We're continuing to do that, but today, we do not have any significant planned restructuring actions. We've done a lot of that over the last three years. We've focused the company into the markets and the services we want to provide. That focus has allowed us to build this record backlog. We've exited some businesses, sold some businesses, and gotten out of properties and some real estate that weren't strategic to the future of the company. As we continue to add more backlog and roll backlog into revenue, I think we're going to start to see our ability to leverage the consolidated cost structure we have, and our shared services organizations that we've built over time. We feel pretty good where we are, but that is not to say we will continue to find areas in the business where we think we can be more efficient.

John Franzreb, Analyst

Great. Thanks guys for taking my questions. I'll get back in the queue. Thank you.

Operator, Operator

Thank you. Our follow-up question comes from Brent Thielman from D.A. Davidson. Your line is now open.

Brent Thielman, Analyst

Thanks. I guess, John, sort of looking at the book of business here, it's been a massive increase here over the last 12 to 18 months. It seems to me based on your commentary, the environment is even better than it was 12 to 18 months ago in terms of appetite to spend by customers, at least in most areas. Your burn rate is going to obviously pick up here at some point. But maybe just your thoughts on the ability to build upon a $1.5 billion book of business here just in context of all those things and the fact that you will be burning more work going forward. I'd be curious your thoughts there.

John Hewitt, President and Chief Executive Officer

Yes, that's a great question. We believe our opportunity pipeline is solid with projects that are expected to move forward. The timing of securing our fair share of these projects is something we need to consider. Both the timing and size of these projects will allow us to maintain a strong backlog, and in some cases, continue to grow it. We have been fortunate to build on our backlog for almost two years now. It's important to note that the significant increase in backlog has occurred since the end of Q4 2023. We've mentioned before that backlog should not be judged on a quarter-to-quarter basis. While it's been excellent to see backlog growth over the last 11 quarters, it's really about the long-term trend. As revenues start to come out of that backlog, there may be a quarter or two where our book-to-bill ratio is below one, but we could see a significant increase in the following quarter. We are confident that the projects available to us, in both quality and size, will help us maintain or grow this backlog as we progress through fiscal '25.

Brent Thielman, Analyst

Yes. I wanted to ask about the quality aspect as well. You mentioned that the direct margins, excluding under absorption, look pretty good. Considering the current climate progress, what does that mean for bid margins? How does this influence your perspective on the potential earnings of the business as you begin to execute? I understand that the 10% to 12% growth is the starting point, but are there opportunities for growth beyond that based on the bids you're seeing today?

John Hewitt, President and Chief Executive Officer

I think on the projects, especially on the larger projects that are coming through the bid funnel today, we've seen a return to more historical gross margin opportunities on those projects. The risk profile for those projects of our ability to ensure we have the right contingency applications and escalation applications has returned to more normalized levels. We feel good about that. I mean, we still have projects and do day-to-day maintenance work and small projects as part of our overall portfolio of services that have some lower margins, but they're strategic for why we do it, and they build client relationships for our workforce, so we can apply those to other projects and higher added value projects. We feel pretty good about the opportunity to continue to maintain and build a backlog that's got margin potential that returns to our historical levels.

Kevin Cavanah, Vice President and Chief Financial Officer

A couple of other thoughts is that the markets we've got, the backlog we've got that funnel, it supports us eliminating the under recovery issue, which has been probably the most significant issue on gross margin percentage. It should allow us to be where we're consistently fully recovering overhead just because of the strength of the markets.

Brent Thielman, Analyst

Could you provide your thoughts on the anticipated increase in power and load demands, as indicated by the utilities? Alongside this, there's a suggestion that gas may serve as a transitional power source. While you've made significant strides in peak shaving work, how do you foresee the market evolving? Is there potential for improvement beyond your current status? Additionally, in what other ways are you positioned to address this trend of increased reliance on gas for power generation?

John Hewitt, President and Chief Executive Officer

Yes, really. I think for us, a mid-step kind of look at it like the crude oil business, the midstream down into the downstream. I think we're well positioned there, both from gas processing facilities through storage to LNG, to NGLs both for domestic use and international use. I mean, I think we're really positioned well in the market for gas and natural gas liquid-related demand globally and domestically. And so I think our positioning is great. Our ability to provide internally under one brand to provide the cryogenic storage, design, fabrication, and construction, as well as our ability to deal with the process elements around storage, for instance, at peak shaving facilities gives us a unique position in that market. We're looking out pretty far. In the near term, there are other LNG peak shaving opportunities in the market over the next four to six months that we expect to be bidding and proposing on, and those projects are good for us. We've got a great brand and reputation in that. We like the competitive set we have in those markets, so our expectation is that, certainly on the larger side, we should be able to add more of those projects into our backlog. Another thing happening in those markets is the repair and upgrade projects happening to existing infrastructure for all the same market dynamics creating better opportunities, even though they're smaller projects. Our ability to inspect and repair existing storage infrastructure, to go in and upgrade liquefaction equipment or boil-off gas equipment at existing facilities is another angle for our expertise. Again, those aren't necessarily big projects; they could be in the sub-$50 million kind of projects, but they're a number of them out there in the near term. They provide a good opportunity for us, good margins, absorbable overheads. We feel we're very well positioned from increased demand for natural gas and natural gas-related products.

Brent Thielman, Analyst

Really helpful. Thanks for taking all the questions. Best of luck.

John Hewitt, President and Chief Executive Officer

Sure.

Operator, Operator

Thank you. And I'm showing no further questions. I would now like to turn the call back over to Kellie Smythe for closing remarks.

Kellie Smythe, Senior Director of Investor Relations

Thank you. As a reminder, Matrix will be participating at the upcoming Stifel Cross Sector Insight Conference on June 4th and 5th in Boston. If you'd like additional information on our attendance to this event or would like to have a conversation with management, please feel free to contact me through Matrix Service Company Investor Relations website. Thank you for your participation and time.

Operator, Operator

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