Matrix Service Company

Good day, and thank you for standing by. Welcome to the Matrix Service Company conference call to discuss results for the first quarter fiscal of 2022. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference over to Kelly Smythe, Senior Director, Investor Relations. Please go ahead.

Thank you, Lee. Good morning and welcome to Matrix Service Company's first quarter of fiscal 2022 earnings call. Participants on today's call will include John Hewitt, President and Chief Executive Officer, and Kevin Cavanaugh, Vice President and Chief Financial Officer. The presentation materials we will be referring to during the webcast today can be found under Events and Presentations, on the investor relations section of the matrixservicecompany.com website. Before we begin, please let me remind you that on today's call, the company may make various remarks about future expectations, plans, and prospects for a matrix service company that constitute forward-looking statements for the purposes of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements, as a result of various factors, including those discussed in our annual report on Form 1010 for our fiscal year ended June 30th, 2021, and subsequent filings made by the company with the SEC. To the extent the company utilizes non-GAAP measures, reconciliations will be provided in various press releases, periodic SEC filings, and on the company's website. I will now turn the call over to John Hewitt, President and CEO of Matrix Service Company.

Thank you, Kelly, and good morning, everyone, and thank you for joining us. With Veterans Day in the U.S. and Remembrance Day in Canada just two days away, I want to take a moment to thank all veterans, the men and women in military branches and reserve units who have put themselves in harm's way and stand ready to protect our freedom and way of life. To our veteran employees, I want you to know that I'm extremely proud to have you as part of the Matrix team and appreciate all you do for our company. Before I turn the call to Kevin to provide more detail on first quarter results, I want to give you some perspective on the operations and business. The bidding environment remains extremely active across all our segments to the extent we have had to add resources to handle the increase in activity. Our centralized business development organization is creating an even stronger opportunity pipeline with a more focused approach to the markets and a broader outreach to our core clients. This quarter, we saw a positive increase in awards, many of which were projects we've been working on for the past six months. As noted in our earnings release, our quarterly book to bill of 1.6 on awards of $267 million is the best quarterly award cycle since the first quarter of fiscal 2020. As far as revenues in the first quarter, they fell in line with our expectations on how the first half of the year would begin. But at this revenue level, we continue to under absorb construction overhead. From an operations perspective, continuing commissioning and startup challenges on the capital project in our utility and power infrastructure segment that we referenced on last quarter's call resulted in increased costs to complete. We've made good progress moving this project towards substantial completion and will be demobilizing from the site this month. While the project is not in a lost position, the outcome was certainly not at the level which we had expected. Importantly, our client relationship is strong and their reference was key to one of our significant awards this quarter. In addition, there was also a project in the utility and power infrastructure segment that was completed in 2019, which had a pending outstanding receivable that was tied up in litigation. Based on the recent outcome of the litigation and pending a full accounting of the settlement, we believe that there is risk in collecting the full value of the amount owed. This outcome further impacts the margins for this segment. On a positive note for this segment, the electrical infrastructure portion not only had a good award cycle in the quarter, but also performed at a high level from a gross margin perspective. Some storm revenue this quarter also positively supported the margin outcome. Our other operating challenge in the quarter was in the storage and terminal solution segment, where low revenue volume mixed with competitively priced work in a tough operating environment challenged consolidated margins in our tank business. Contributing to the competitive margin environment is a lack of larger multiple tank crude projects and terminals getting to award. The smaller opportunities have been available, opened the door for regional specialty contractors who drive pricing down to unreasonable levels. Larger tank and terminal opportunities in crude and specialty vessels have been extensive, but awards limited. These projects, which minimize the competitive set and have a better pricing profile, are now reaching the anticipated award cycle. We therefore expect the segment outcomes to improve into the back half of the year as newly won projects, better mix of projects, higher volumes, and the potential for other near-term opportunities enter our revenue stream. Our process and industrial facility segment performance, anchored by our nested refinery operations and industrial services group, provided good direct margins. I also want to share a perspective on a few of the industry trends we are watching closely. First, industry labor shortages at both the professional and craft levels. The industry is competing more aggressively for professional staff, such as estimators, engineers, and project managers. Increased project activity is stretching supply and demand, and the lingering effects from the pandemic are straining the balance between in-office and remote work. As project activity increases in our end markets, as well as adjacent markets and its infrastructure investments are made at a federal level, the shortage of craft workers will become an increasing challenge. These shortages are not new, but continue to be of concern to Matrix and to the industry as project activity ramps up. The competition for quality employees can put upward pressure on wages, benefits, and overall project costs that we will build into our estimates and commercial arrangements. That said, we work hard to attract, develop, and retain best-in-class employees in our offices and on our job sites. We continuously strive to be an employer of choice and are proud of the strong relationships we have with our employees, many of whom choose to work for Matrix because of our safety culture and reputation and travel from job to job with our teams. This, together with our focus on diversity, equity, and inclusion, make us a great place to work for all of our employees. Supply chain delays, increasing material costs, are other areas we are watching closely as we see escalation of costs on a variety of commodities, construction bulk materials, and engineered products. We monitor commodity pricing and raw materials on a continual basis and, where possible, purchase materials earlier in the project lifecycle to avoid the impacts of potential pricing escalation. We also maintain close contact with our suppliers and subcontractors which allows us to identify and develop solutions to meet required project dates. Finally, we work with our clients to create a commercial framework that best meets the requirements of the project, yet minimizes the risk of these impacts to us. Lastly are the regulatory and client requirements around COVID-19 testing and vaccinations. Just last week, OSHA issued the Emergency Temporary Standard mandating all employers to with 100 or more employees to either require employees receive COVID-19 vaccinations or submit to weekly COVID testing and wear masks in the workplace. The order is expected to take effect on January 4th of 2022, pending several lawsuits as to its constitutionality. To be clear, Matrix will not mandate vaccinations, but we will comply with the order to test and wear masks. We have been preparing the organization in the event that this emergency order becomes law and feel we are ready to implement the regulation if required. Many clients are beginning to implement their own project-specific vaccination requirements, including some who are requiring our employees to be fully vaccinated to access their job sites and other clients requiring frequent COVID-19 testing. To date, we have been able to comply with these requirements with minimal disruption. The environment around COVID-19 continues to be fluid. especially in our industry, and we are working proactively to anticipate and prepare for what is coming. And I'll turn the call over to Kevin.