MTRX earnings call analysis

NASDAQ:MTRX Q1 2026 Earnings Call Transcript Generated on 6/6/2026 Operator | Conference Operator: Good morning, and welcome to the Matrix Service Company conference call to discuss results for the first quarter of fiscal 2026. Currently, all participants are in listen-only mode. Later, we will conduct a question and answer session, and instructions will be given at that time. If you require assistance at any time, please press star 11 on your telephone. As a reminder, this conference call is being recorded. I'd like to turn the conference over to today's host, Ms. Kelly Smyth, Senior Director of Investor Relations for Matrix Service Company.

Kathleen Smyth | Senior Director, Investor Relations

Thank you, Marvin. Good morning, and welcome to Matrix Service Company's first quarter fiscal 2026 earnings call. Participants on today's call include John Hewitt, President and Chief Executive Officer, and Kevin Cavanaugh, Vice President and Chief Financial Officer. Following our prepared remarks, we will open the call up 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, They constitute forward-looking statements for the purposes of the Private Security 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. 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 of the prior year unless specifically stated. Related to investor conferences and corporate access opportunities, we will be participating in the Sidoti and Company year-end Virtual Investor Conference on December 10th and 11th, 2025. We will also be participating in the Northland Capital Markets Growth Conference on December 16th. This conference is also virtual. 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 Matrix Service Company Investor Relations website. As we shift our focus to safety, I want to underscore its vital importance to our business. At Matrix, safety stands as our foremost core value. And as Mr. Hewitt frequently emphasizes, nothing outweighs the physical and mental well-being of our employees, subcontractors, clients, and others who may be present at our job sites or in our offices. This is not simply about compliance. It's about continuously cultivating an environment where safety is ingrained in our culture. Every one of us deserves to feel safe at work and return to home to our families and loved ones at the end of the day. And while safety is always the right thing to do, it's also a business imperative. It strengthens our competitive edge, enabling us to bid on and secure vital projects, foster lasting client relationships, and attract and retain top talent. Our clients trust us to execute their projects safely and with unrivaled quality. This trust is something we value, and we hold ourselves accountable to the highest standards. By maintaining our unwavering commitment to safety, we position Matrix not just as a leader in engineering and construction, but as a dependable partner dedicated to excellence and care. I will now turn the call over to John.

John Hewitt | President and Chief Executive Officer

Thank you, Kathleen. Good morning, everyone. We begin fiscal 2026 with strong execution, resulting in double-digit revenue growth and our highest quarterly gross margin in over two years. This performance reflects the continued maturation of our backlog, and a disciplined approach we've taken to project bidding and delivery. Bidding activity remains healthy across our segments, and we saw a solid level of new awards. Our opportunity pipeline also remains robust for not only near-term projects, but several large multi-year projects with anticipated award dates beginning in late fiscal 2026 and into fiscal 2027. Based on our first quarter performance, our strong backlog, and the visibility we have today, we are reiterating our full-year revenue guidance of $875 to $925 million. Typically, the first quarter reflects a seasonal slowdown in demand for maintenance and repair services. This year, that was largely offset by increased activity on larger projects. Our mix of project work drove gross margin improvement, representing our best quarterly gross margin in more than two years. We expect continued margin improvement as we move through fiscal 2026, supported by a conversion of backlog to revenue. Award activity in the quarter was stable, resulting in a book to bill of 0.9, and we ended the quarter with a total backlog of 1.2 billion. During the first quarter, we removed approximately 197 million from backlog related to two projects. While Kevin will provide more detail in his remarks, These removals do not reflect a reduction in demand, changes in the market, or business performance issues. In both cases, the clients changed their commercial strategy and neither project had mobilized. Importantly, the removal of these projects from our backlog does not impact our Q1 results or full-year guidance. We continue to be disciplined in our bidding and contracting efforts to ensure our project risk and financial return profile meets our standards. Now let's talk about our markets and what we see in the organic opportunities that will drive the business. First, our total opportunity pipeline currently sits at $6.7 billion, with the majority of those opportunities in storage and related facilities for LNG, NGLs, and ammonia, which feed our storage solutions and utility and power infrastructure segments. We continue to see a steady level of incremental bidding opportunities supported by strong investment and domestic infrastructure and a favorable regulatory environment. Growing demand for sustainable and reliable power is creating significant project opportunities upstream from the massive investment in data centers and advanced manufacturing, among other expanding electrical consumers. So whether it is LNG for backup fuel or peak shaving, upgrades to existing LNG facilities, new base load or backup power generation, or substation upgrades and new construction, our business will benefit from these investments in this critical infrastructure. And while the timing of awards can be fluid over the coming quarters, we expect that the level of awards will be similar to what we saw during the first quarter. This award portfolio will be made up of mid-sized projects on top of our normal cadence of small projects and maintenance. These projects will reinforce our strong backlog, continue to provide more predictable revenue flow, and build our resource base as the business grows. One recent example is the award of a balance of plant construction at the Delaware River Partners multi-use port facility in Gibstown, New Jersey, that will support growing export demand for NGLs, including propane and butane. This award, which was taken into backlog in the first quarter of fiscal 2026, follows a fiscal 2025 award associated with the construction of a large full containment dual-server storage tank at the same facility. These two projects represent our ability to provide integrated delivery for complex storage facilities, which is a key differentiator for the business. As we move into late fiscal 2026 and into fiscal 2027, we anticipate a reacceleration in award activity for larger multi-year projects, which we are currently in the process of pursuing. In our process and industrial facility segment, Our strategic focus is to expand our markets, client base, and footprint to build backlog and revenue while executing safely with high quality and financial outcomes. Actions include strengthening our position in core geographic markets, realigning our business development resources with our growth priorities, and leveraging our strong customer relationships to expand organically. Focus areas include repair, maintenance, turnarounds, and small cap projects in various process industries, including refining, chemicals and renewable fuels, mining and minerals in support of the demand for non-ferrous metals and rare earth minerals, thermal vacuum chambers where we hold a dominant position, as well as various natural gas value chain opportunities. We are positioned to capture opportunities in this segment and deliver improved results over the long term. With projectivity continuing to build due to the steady conversion and replacement of we are highly focused on ensuring that we deliver consistent performance for our customers in the highest level of quality and safety. The recent changes to our organization structure, which we have talked about on previous calls, has enhanced our agility, competitiveness, and performance. These changes, along with strategic actions we have taken over the last few years, are already strong service offering. Position us to deliver on current commitments and complete effectively with substantial opportunities within a robust pipeline. We remain committed to disciplined capital allocation. Our strong balance sheet supports the working capital needs of active projects as these jobs progress through key execution phases. As we return to sustained profitability in the coming quarters, we'll deploy capital thoughtfully, targeting growth opportunities that expand our market share and drive long-term shareholder value. 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 of us, which will not only support this fiscal year, but will continue to create growth in fiscal 2027 and beyond. I am confident that our focus on our core pillars of win, execute, and deliver will serve to drive compounding profitable growth and long-term value for our shareholders and customers alike. So with that, I'll turn the call over to Kevin.

Kevin Cavanaugh | Vice President and Chief Financial Officer

Thank you, John. The first quarter of the year went about as we anticipated from an operating results balance sheet, cash flow, and project award perspective. Revenue of $211.9 million represented a 28% increase compared to $165.6 million in the first quarter of fiscal 2025. This is mainly due to growth driven by larger new construction projects in the storage and terminal solutions and utility and power infrastructure segments. We expect this revenue growth to continue as we move through the rest of fiscal of the fiscal year. Consolidated gross profit increased 82% to $14.2 million in the first quarter compared to $7.8 million in the prior year. With strong project execution in both periods, the gross profit increase was the result of revenue growth as well as improved construction overhead recovery. Consolidated gross margin improved to 6.7% versus 4.7% in the first quarter of fiscal 2025. SG&A expenses were 7.7% of revenue or $16.3 million compared to 11.3% or $18.6 million in the same quarter last year. The $2.2 million decrease is primarily the result of the efficiency improvement changes implemented by the company over the last two quarters. The company will continue to work to leverage SG&A to its 6.5% target as revenue grows while also investing in resources when needed to support strong market demand and growth in our business. As expected, the company incurred 3.3 million of restructuring costs in the first quarter related to the efficiency efforts mentioned. The company has completed the bulk of restructuring activities and expects minimal restructuring costs during the remainder of fiscal 2026. For the first quarter of fiscal 2026, The company had a net loss of $3.7 million, which includes a $3.3 million of restructuring cost as compared to a $9.2 million net loss in the first quarter last year. GAAP EPS was a loss of 13 cents compared to a 33-cent loss in the prior year. Excluding the restructuring cost, adjusted EPS was nearly break-even at a loss of 1 cent in the first quarter. This performance reflects the operating leverage inherent in our business model and is consistent with the expectations that we have previously communicated, which is that we expect to achieve break-even on a GAAP net income basis at a quarterly revenue level of 210 to 215 million. Adjusted EBITDA in the first quarter was a positive 2.5 million compared to a loss of 5.9 million in the first quarter of last year. Moving to the operating segments, Let's start with storage and terminal solutions, which represented 52% of consolidated revenue. First quarter revenue in this segment was $109.5 million compared to $78.2 million last year. The $31.2 million or 40% increase continues a trend which began in fiscal 2025 and was driven by LNG storage and specialty vessel projects. We expect this growth trend for storage and terminal solutions segments to continue as we move through fiscal 2026. Segment gross profit increased by 1.8 million, or 38%, in the three months ended September 30, 2025, compared to the same period last year due to higher revenue volume. The segment gross margin of 5.9% for the quarter was consistent with the segment gross margin of 6% in the same period last year. Gross margins for the segment continued to be primarily impacted by under-recovery of construction overhead costs, which we expect to improve as activity on projects currently in backlog increases through the remainder of fiscal 2026. Moving on to the utility and power infrastructure segment, which accounted for 35% of consolidated revenue. First quarter segment revenue increased 33% to $74.5 million. compared to $55.9 million in the first quarter of fiscal 2025, benefiting from higher volume of work associated with LNG peak shaving and power delivery projects. Segment gross profit increased by $5.5 million, or 419%, in the first quarter, compared to $1.3 million in the same period last year. The growth resulted from the revenue increase and an improved gross margin, which increased to 9.1%, compared to 2.3% in the same period last year. The margin improved due to strong project execution and construction overhead cost recovery as a result of higher revenues. Finally, the process industrial facility segment accounted for 13% of consolidated revenue, or $27.9 million, in the first quarter of fiscal 2026, compared to $31.4 million in the first quarter last year. As John discussed, The market presents good opportunities in this segment to improve the revenue level. Segment gross profit decreased to 5.6 million or 28 percent in the three months ended September 30, 2025 compared to the same period last year. The segment gross margin was 5.1 percent for the quarter compared to 6.4 percent in the same period last year. The decrease is primarily attributable to an unfavorable change in the mix of work. Segment gross margin in both periods were impacted by under recovery of construction overhead costs due to low revenue volumes. Moving to the balance sheet and cash flow, as expected, cash decreased in the first quarter, ending at $217 million, down $32 million from the start of the quarter as the company continues to make progress on the large projects and backlog that were in a prepaid position. Exiting the quarter, The balance sheet and liquidity remain in a strong position with liquidity of $249 million and no outstanding debt. We will continue to proactively manage the balance sheet and have the financial strength and liquidity needed to support the positive earnings inflection we anticipate as we progress through fiscal 2026. Now, let's discuss project awards and backlog. Project awards in the first quarter were consistent with what we anticipated They totaled $187.8 million for a 0.9 book-to-bill, with the storage and terminal solutions segment accounting for $136.1 million of the awards. As John mentioned, during the first quarter, we made the decision to remove two projects, totaling $197 million from backlog. Neither of them impacting our fiscal 2026 revenue guidance. Each project reflected a different situation. The first and largest was within our process and industrial facility segment and was formally awarded to us in late fiscal 2023. Our scope of work on this project was construction only and the start of field work had already been delayed by over a year due to slow progress on scoping, design development, and engineering, which is outside our responsibility. Just recently, the owner decided to adjust its execution and contracting structure which resulted in their decision to re-bid the construction portion of the project. The project will be re-bid in packages later this year, and we intend to submit bids on certain aspects of our original scope. That said, due to this change, we removed the original awarded project from our backlog consistent with our backlog recognition policy. The second project was in our utility and power infrastructure segment. In this case, the project was formally awarded in the fourth quarter of fiscal 2025. Subsequently, the client sought to modify the terms and conditions of this agreement in a way that significantly increased our risk on the project. This change was inconsistent with both the as-bid basis of our proposal and our commercial policies. As a result, the award was rescinded and we removed it from backlog. After removal of these two projects, backlog remains strong at $1.2 billion and is supportive of our revenue guidance of $875 to $925 million. When we started the year, we mentioned that we were going into the year with 85% of our revenue booked at the midpoint of our guidance range. As a result of awards during the first quarter, this percentage has decreased to more than 90%. I'm sorry, the percentage has increased to more than 90%. and we continue to be confident in our ability to achieve our revenue guidance. 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 as the fiscal year and make us and make significant progress towards the achievement of our long-term financial targets. This concludes our prepared remarks.

We'll now open for questions. Operator | Conference Operator

Thank you. At this time, we'll conduct a question and answer session. As a reminder to ask a question, you'll need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. And our first question comes from the line of John Frenzreb of Sidonian Call. Your line is now open.

John Frenzreb | Analyst, Sidoti & Company

Good morning, everyone, and thanks for taking the questions. I just want to start with where you finished about those two projects. It doesn't seem like there's much in common with them, and it seemed like the start dates were probably due in 2027, if not later. But I am curious if that suggests that the competitive landscape, as one was rebid and one of the terms were changed a bit, the competitive landscape, so we're getting a little bit tougher for larger projects out there.

John Hewitt | President and Chief Executive Officer

I don't think so. I don't think both those situations were... really not associated with, you know, as you pointed, the competitive landscape. I think it's just the way the larger project, as Kevin had said, you know, we've been in our backlog for almost two years, and there was a lot of scope and design changes that were going on between the owner of the project and our client. And I think the ultimate client, the owner, decided that they were going to just change their execution strategy and try and do it a different way. And then the other project, really, I frankly applaud our teams for not being sucked into taking a job that had a much higher risk component, certainly one that we were not – not given additional remuneration for it to take on that risk. And I think we were able to make that decision to do that because there's a significant amount of opportunities in the marketplace for that kind of work where we've got a very strong brand position. We've got a very strong position in those markets. And so I think at the end of the day, it was a positive thing, particularly when neither one of those projects really impact our fiscal 2026.

John Frenzreb | Analyst, Sidoti & Company

Got it, got it. And, John, I might be reading too much into this, but I think in your prepared remarks you mentioned that midsize projects are growing, but later in your prepared remarks you said that you look for a reacceleration of large project work. Did I hear that properly? And if so, what's the timing of when you expect, you know, large jobs to be let out again?

John Hewitt | President and Chief Executive Officer

Yeah, I mean, we put some pretty large projects into our backlog 18 months ago. And so just the timing, the development of the bigger energy facilities, certainly around LNG and NGLs, ammonia jobs, it just takes longer to get those things through a proposal process and development process. And so there's a number of those projects out there that we are tracking. We may be providing... upfront feed work for, maybe some engineering development, scheduling, budgeting, helping some of our core clients in those markets that are continuing to add more infrastructure or planning to add more infrastructure. It's just a timing thing. We're really comfortable about our positioning there. The number of opportunities that are out there that we're going to be able to play a role in and But my comment there is over through this fiscal year, there continues to be a lot of what we call mid-scale projects available to us. I think we announced the DRP project this morning, which went into backlog in our first quarter. Typical kind of projects that we see out there in our pipeline that we're currently bidding on or have bid and that we're working through details with the clients on that. So And each of those projects individually, they're not short-term projects. They may not be a three-year project, but they could be 12 to 18 months. They allow us to continue to maintain a strong backlog, to really build our teams as the bigger projects come down through the opportunity pipeline. And so I feel really good about, A, our ability to continue to maintain a solid backlog and to continue to strengthen the company's operations through a lot of these, what you'd call smaller projects. Now, these projects certainly aren't tiny, but they're not the kind of the mega stuff that, for us, the mega stuff that we put in the backlog 18 months ago.

John Frenzreb | Analyst, Sidoti & Company

Understood. And just a question on the restructuring. I'm wondering how that changes the breakeven dynamics and if there's any other things that you're thinking about as far as the year ahead, any other kind of actions?

Kevin Cavanaugh | Vice President and Chief Financial Officer

Yeah, so it does have a good impact on our cost structure, decreases that, which does lower our break-even point. At this time last year, we were talking about it took us $225 million of quarterly revenue to get to break-even. That's decreased to somewhere between $210 and $215 million to get to break-even. Those Those changes also decreased the level of revenue required for us to reach full construction overhead cost recovery. That's now around 250. And it decreased the amount of revenue we need to get our SG&A down to our 6.5% target. That's also down to 250. So that's definitely had a positive impact on the earnings power of the company. You know, as we mentioned, we're We're substantially complete with the restructuring items that would have a cost impact. So there may be some minimal costs that flow through the rest of the year, but it's not much is expected there. With that said, we're continuing to focus on improving the business and have actions and plans in place to address all the issues within the business to continue to focus on returning to profitability and producing the strong bottom line on a quarter-over-quarter basis.

John Frenzreb | Analyst, Sidoti & Company

Got it. That was very helpful, Kevin. I'll get back to you.

Thank you. Operator | Conference Operator

Thank you. One moment for our next question. Our next question comes from the line of Augie Smith of TA Davidson. Your line is now open.

Augie Smith | Analyst, TA Davidson

Good morning, guys. Thank you for taking the questions today. To begin, can you guys touch a bit more on kind of what projects you're targeting within the gas power project space? In previous conversations, you had mentioned you're looking at some gas power plant work, but kind of more specifically, what are your capabilities there, and how do you see that playing out moving forward? And then is this something we should be considering for fiscal 26?

Thanks. John Hewitt | President and Chief Executive Officer

Yeah, so if you've been around us for a while, when there was a lot more activity in the late 90s, early 2000s, we as a company and part of our legacy members of our company were involved in a number of the larger combined cycle gas-fired power plant build-out across the country, California, Ohio, into Pennsylvania, so a variety of different areas. So not only as acting as a general contractor on those projects, but in some cases, we would, you know, provide the centerline erection, boiler erection, the mechanical piping systems, and so we have those skill sets reside in the organization, and we have those capabilities. Over the last, certainly the last few years, as that market, you know, flattened out, you know, pre-COVID, you know, those resources were applied into other industries and other markets that were maybe gaining strength. So, So we can see in the current market for power generation and a combination of increased demand for generation, looking for more sustainability, more reliability, and maybe a little cleaner generation moving from coal to natural gas. It plays very well for us. We have all those construction skill sets to not only have a role in the construction of new power generation, but also to do all the backup fueling, natural gas and LNG, as well as peak shaving terminals. We have a very strong brand position there. If you think about upstream from the new major demand for generation, back up into existing power suppliers. They need to expand their generation resources. They need to make sure they have reliable generation, backup fuel for that generation. All those things are creating project opportunities for us. Frankly, in our opportunity pipeline, I would expect that to grow here over the next year as more power generating related projects come into move from our prospects phase into our opportunity pipeline.

Augie Smith | Analyst, TA Davidson

Okay, awesome. Thank you for the added color there. And then kind of shifting gears again back to the backlog. So obviously backlog was impacted this quarter by the removal of those two awards. But kind of moving forward, should we continue to view backlog in the $1 billion plus range? And then kind of more specifically, you guys mentioned that the process and industrial facilities project that was removed was because the client wanted to split it up into multiple bids. Do you guys envision this kind of becoming a pattern with other clients as well, or do you guys think of this as more of a one-off?

John Hewitt | President and Chief Executive Officer

Yeah, I think that's a one-off situation, at least for the projects that we're involved in. I would say what we're seeing more of a turn is clients that are trying to lock up resources and engineering and construction capabilities. And so in some cases, they are looking at alliances, looking at partnering agreements, looking at better risk sharing through reimbursable kind of contracts. So I think we're in that place in the market right now where it's becoming, I hate to use the term, it's becoming a seller's market. But certainly, I think that pendulum has moved in a little bit in some areas and some regions of the country where you're going to see more contractors getting locked up with owners to get their infrastructure put in place. So I think right now it's a pretty good place to be in, A, to have the kind of brand strength that we have and capabilities in the markets we can perform in. But, you know, not just for us, certainly for, you know, some of our peers as well.

Augie Smith | Analyst, TA Davidson

Okay. Thank you. Very much appreciated.

I'll leave it there. John Hewitt | President and Chief Executive Officer

Thank you.

Operator | Conference Operator

Thank you. I'm showing no further questions at this time. I'll now turn it back to Kelly Smythe for closing remarks.

Kathleen Smyth | Senior Director, Investor Relations

Thank you. As a reminder, the Sedodian Company year-end virtual investor conference is scheduled for December 10th and 11th. We will also be participating for the first time in the Northland Capital Markets Virtual Growth Conference on December 16, 2025. If you're participating, we look forward to speaking with you. Additionally, 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. Operator | Conference Operator

Thank you for your participation in today's conference. This concludes the program. You may now disconnect. jsPDF 3.0.3 D:20260606090252-00'00'

NASDAQ:MTRX Q4 2025 Earnings Call Transcript Generated on 6/6/2026 Conference Operator | Operator: Good morning and welcome to the Matrix Service Company conference call to discuss the results for the fourth quarter of fiscal 2025. Currently, all participants are in listen-only mode. Later, we will conduct a question and answer session and instructions will be given at that time. If you require assistance at any time, please press star 1 1 on your telephone. As a reminder, this conference call is being recorded. And I turn the conference over to today's host, Ms. Kelly Smith, Senior Director of Investor Relations for Matrix Service Company.

Kelly Smith | Senior Director of Investor Relations

Thank you. Good morning, and welcome to Matrix Service Company's fourth quarter fiscal 2025 earnings call. Participants on today's call include John Hewitt, President and Chief Executive Officer, and Kevin Cavanaugh, Vice President and Chief Financial Officer. Following our prepared remarks, we will open the call up 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 Private Security 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. 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 of the prior year, unless specifically stated. Related to investor conferences and corporate access opportunities, we will be participating in the DA Davidson 24th Annual Diversified Industrials and Services Conference, and Nashville, Tennessee, September 17th through the 19th. 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. I will now turn the call over to John.

John Hewitt | President and Chief Executive Officer

Thank you, Kelly. Starting with safety, at Matrix, the physical and mental safety of our employees, as well as that of anyone on our project sites or in our offices, is core to who we are, an expectation for all employees, and a commitment we uphold for all stakeholders. Today, I want to talk about this. Similar to airport security today, if you see something that does not look right, that could create a hazard for yourself or fellow employees, then please say something. At Matrix, this is not only a right our employees have when they come to work for us, but it is an obligation and expectation for everyone. And we expect our leaders to listen and act without retribution. This authority is a critical part of our culture and creates a safer work environment. And we find many times in near misses and incidents that the use of stop work authority or the honoring of that authority by leadership could have avoided an incident. In fiscal 2025, we made significant improvements in both our total recordable incident rate, or TRIR, and our DART rate, which is a measure of injury severity. and stands for days away, restricted, or transferred due to an injury. Our TRIR improved from 0.91 in fiscal 2024 to 0.51 in fiscal 2025. And our DART rate improved from 0.28 to 0.21 for the same period. And while we are proud of these achievements, we understand that achieving and maintaining a zero incident safety performance is a relentless journey. And we will continue to prioritize safety in everything we do as you work towards this goal. So as we conclude fiscal 2025, on behalf of the company's leadership team, I would like to thank everyone at Matrix, as well as our subcontractors and others on our project sites and offices for your unwavering commitment to our safety journey and building the kind of culture that we expect. The effort you invest in fostering a safe work environment at work and at home makes a profound difference, and together we can achieve our goal of zero incidents. And to our team members, remember stop work authority is a right, an obligation, and an expectation for everyone. As I reflect on fiscal 2025, the financial results certainly did not meet the expectations we had at the start of the year. nor does it accurately portray the positive underlying performance of the business. It is essential to look behind the numbers to recognize the progress achieved and the fundamental strength in the business. It is important to understand that the impact from a single isolated event alongside a couple of legacy legal issues from 2021 and restructuring costs encouraged to improve the organization does not reflect the company's underlying performance or its future potential. Kevin will provide more detail on these impacts in his remarks, but before he does, I want to highlight a few key takeaways. First, our project teams are executing well and producing strong, consolidated results on our projects and maintenance activities across the enterprise, as evidenced by an above-plan DGP level, even including the labor productivity issues from a crude storage project that was noted in our earnings release. we are executing on the backlog and new awards above plan on a consolidated basis. Second, while the full year's revenue was below our expectations, over half the revenue shortfall was related to the late start on previously booked work, which is now in full flight, and significant weakness in the planned growth for our T&D business, which led us to exit that service line in the back half of the fiscal year. The trend of growing revenue did occur as expected, quarter over quarter, just not to the level we anticipated. And we expect revenue to continue to grow in fiscal 2026. Third, awards in the year of $726 million allowed us to maintain a near record backlog of approximately $1.4 billion. As a result, we are entering fiscal 2026 with approximately 85% of the planned revenue booked, but nearly all of it underway. Additionally, this year's awards support our core market objectives in specialty storage, LNG facilities, and electrical infrastructure, some of which are directly associated with the East Coast Data Center build-out and its demand for reliable power. These new awards and performance on existing backlog are creating new and reinforcing existing client relationships, which will lead to more award opportunities as the demand for energy, power, and industrial infrastructure continues to heat up. Many of our clients are looking to commit to contractors that they trust and have high-performing teams to ensure their work gets built. Finally, as the year unfolded, we took steps to make sure the business is prepared for what we see as a strong future, a future of opportunities and growth in our target markets. We looked at the business core strategic pillars of win, execute, and deliver to assure that every part of the business, from sales to operations to shared services to administrative support, is properly aligned. In the end, we flattened the organization, closed underperforming offices, consolidated operational support services, restructured business development to better align with core market and growth objectives, and integrated our engineering and construction operations to improve competitiveness, market alignment, and delivery. While we did incur some costs associated with these initiatives, the changes are crucial to ensuring Matrix can capitalize on the significant opportunities ahead. As these efforts begin to bear fruit, They will serve as key catalysts for our continued strategic growth and solid execution in 2026 and beyond. Now let's talk about strategy. Our strategy begins with our people, our purpose, and the core values of who we are as a company. To deliver on this purpose, we must ensure a culture of safety, both physical and mental, and imperative to our business. Maintain our great place to work environment, especially considering the demand for talent, both professional and craft. Remain growth focused to gain scale and durability. Achieve consistent performance, excellence in all aspects of our operations, including safety, quality, timeliness, and margin outcomes. Innovate and lead in the application of technology, including AI, and face change with a positive attitude. And finally, create value for all of our stakeholders. These objectives are central to how we lead, set expectations, and create value, and are embedded in the pillars of win, execute, and deliver, which underpins our strategy. Our win pillar is not only about awards, building backlog, and growing organically, but also making sure we pursue awards with the right risk and financial profile aligned to our strategic market-focused areas. In addition, win also means hiring the best talent, having an industry-leading brand, and building strong client relationships. Our strategic market focus can be broken into two categories. Our current business with the opportunities for consistent and stable revenue combined with specific growth opportunities that are available in markets that fit our brand profile, skill sets, and leadership in engineering, construction, and maintenance for LNG, NGS, ammonia, midstream and downstream energy products, mining and minerals, aerospace, and electrical. And new high growth markets where our presence is currently limited, but opportunities are significant. Our experience and skill sets overlap for base load and backup power generation, fuel storage, electrical interconnects, and mechanical systems that are being driven by growth and power demand from fleet retirements, electrification of everything, expansion of AI and data centers, and advanced manufacturing. Our opportunity pipeline, the 5.3 $5.9 billion is largely made up of our current business market focus areas. Over time, we will add to this pipeline with new high-growth markets, which will provide further strength. Both our current and new high-growth markets are supported by numerous multi-year megatrends aligned with our long-term financial targets and provide the expectation for organic and inorganic growth of the business in 2026 and beyond. Moving on to our execute pillar, we must take the work that we win and execute it with zero safety incidents, high quality, in line or better than budget, on time, and with overall outcomes that strengthen our brand and client relationships. The realignment and streamlining of our organization, which has been strategic and intentional, has been key to ensuring we continue to win and execute at a high level. Finally, the deliver pillar of our strategy is really the culmination of the first two Winning and executing our work in a consistent and high-quality manner that allows us to deliver value to all of our stakeholders, invest in our company, our people, and fixed assets, providing a fuel for inorganic growth, growth opportunities for our people, supports the community, and a return to our shareholders. As it relates to inorganic growth, we have said previously that our focus has been on returning to profitability. We are at that inflection point now. Looking forward, our priorities to ensure durable, return-focused growth through organic, supplemented with focused M&A. As we move through the year, we'll become more intentional and active in the search for inorganic opportunities that meet the strategic needs of the business to support our market objectives. We expect fiscal year 2026 full-year revenue to be between $875 million to $925 million, representing year-over-year growth of 17% at the midpoint of the range. This outlook is underpinned by the strength of our current business, a healthy bidding environment, and a robust backlog. As mentioned earlier, at the midpoint of our guidance, approximately 85% of expected fiscal 2026 revenue is supported by backlog already in hand, and nearly all that backlog is related to projects that have already broken ground or risk of delay is minimal. 2026 will be a crucial year in our strategic journey marked by revenue growth, a return to profitability, and continued execution against our strategic priorities. We are forecasting the first quarter of the year to be similar revenue level to the fourth quarter of fiscal 2025, with a steady improvement in revenue and profitability through the course of the year. With our strong financial position, a realigned organizational structure, backlog, and robust opportunity pipeline, we are confident in our ability to leverage the significant ongoing infrastructure investment cycle to continue our transformation into a scalable and resilient growth platform. Kevin will now provide more details on the numbers.

Kevin Cavanaugh | Vice President and Chief Financial Officer

Thank you, John. Yesterday, we released our results for the fourth quarter of fiscal 2025. Those results were revenue of 216.4 million, EPS of a 40-cent loss, and adjusted EBITDA of a $4.8 million loss. Those results included four items, that masked the continued improvement in the ongoing business. First, we lowered our recovery expectations on a legacy project that is currently in a dispute resolution process, which resulted in a $6.4 million reduction of revenue and operating income. This was related to a crude terminal project that we completed back in calendar 2021. The project was impacted by the COVID pandemic and occurred significant project scope changes directed by the owner. We've been pursuing our outstanding contract balance from the customer since that time. Arbitration proceedings occurred last month and we are awaiting that final decision in fiscal 2026. While the outcome of legal proceedings is uncertain, we believe we have appropriately reserved for our exposure on this issue and expect a positive cash inflow upon resolution. Second, We incurred an additional $3.8 million charge on a crude project impacted by lower than anticipated labor productivity. You may recall we discussed this project last quarter when we began to incur productivity issues. While we work hard to avoid any issues during our projects in our industry, issues will occur from time to time. When they do, our focus is on reducing any financial impact and maintaining a strong relationship with our customer. We are pleased to report that the team worked through the issues, completed the project early this quarter as planned, and did so in a manner that further solidified our relationship with an important customer. Third, we incurred a $1.3 million charge related to an unexpected court decision on a project completed in calendar 2021. In this case, a subcontractor of ours failed to pay certain vendors, even though we had paid the subcontractor. As a subcontractor is no longer able to pay their obligations, the court ruled we had to make good on the amounts owed to the vendors, effectively requiring us to pay the obligations twice. Finally, we incurred $3.4 million in restructuring costs related to the organizational improvement actions John previously discussed. As those actions continue to fiscal 2026, we expect to incur a similar amount of restructuring costs in the first quarter. These actions were mainly designed to improve operational efficiencies, but they also reduced our annual overhead cost structure by approximately $12 million. As we have experienced higher inflation the past couple of years and other cost pressures, these changes will allow us to keep our annual cost structure flat during a period of strong revenue growth. The combined impact of these items was significant to the boarder. It decreased our revenue by $6.4 million, to the reported 216.4 million, which was just below our implied fourth quarter guidance range. It negatively impacted EPS by 53 cents, which resulted in the 40 cent loss I previously referenced, and it decreased our adjusted EBITDA by 11.5 million to a $4.8 million loss. We believe discussing the results in this manner is necessary to demonstrate the fundamental performance and improvement in the underlying business. We have previously discussed our fiscal 2025 focus was to improve operating results and return to profitable performance through the growth and our revenue run rate, effective project execution and leverage of our overhead cost structure. The revenue grew each quarter of the year as large projects ramped. That growth continued in the fourth quarter, with revenue being 31% higher than the start of the year. The revenue run rate has now reached a level that supports positive earnings. As previously mentioned, our project execution was strong enterprise-wide as the underlying business produced double-digit direct margins excluding the items discussed. We have a quality backlog and will continue to focus on effective project execution. The leverage of our cost structure improved throughout the year with the impact of the under-recovered construction overhead reducing from 620 basis points in the first quarter to 160 basis points in the fourth quarter. Finally, SD&A leverage also improved from 11.2% of revenue in the first quarter to 88.1% in the fourth. As we move through fiscal 2026, additional revenue growth combined with the efficiency actions taken will allow us to materially eliminate the under recovery of construction overhead and further leverage SD&A toward our 6.5% target. Moving to the segments, storage and thermal solutions segment revenue increased 37% to 96.1 million in the fourth quarter of fiscal 2025 compared to 70 million last year due to increased volume of work for specialty vessel and LNG storage projects. Gross margin in the fourth quarter of fiscal 2025 reflects improved operating leverage resulting from higher revenue. However, gross margin was a negative 1.1% in the fourth quarter compared to a positive 3.1% last year as a result of labor productivity issues on a crude terminal project and lower recovery expectation on a legacy project, both of which were discussed previously. Utility and power infrastructure segment revenue increased 12% to $73 million in the fourth quarter compared to $65.3 million in the same period a year ago, benefiting from a higher volume of work associated with natural gas beach shaving projects. Gross margin was 9.1% in the fourth quarter compared to 4.2% last year, an increase of 4.9% due to strong project execution and improved construction overhead cost absorption. The fourth quarter gross margin was also impacted by the $1.3 million charge related to the unfavorable court decision discussed previously. Process and industrial facility segment revenue decreased to $47.3 million in the fourth quarter compared to $54.2 million last year, primarily due to lower revenue resulting from the completion of a large renewable diesel project last year. In addition, we had lower revenue from thermal vacuum chambers, partially offset by higher revenue volumes for refinery work. Due to the change in mix of work, gross margin was 5.9% in the fourth quarter of fiscal 2025, compared to 15.4% last year. Now let's discuss backlog, which stands at almost $1.4 billion as of June 30, 2025. Project awards totaled $186.3 million in the fourth quarter, resulting in a book-to-bill ratio of 0.9. While economic uncertainty has impacted the timing of project awards overall, the utility and power infrastructure segment had a strong quarter with $121.9 million in awards, and a book to build 1.7. These awards were related to LNG peak shaving projects and substations. The year backlog level is supportive of strong revenue growth in fiscal 2026. And moving to the balance sheet, our cash increased an additional $39.1 million in the fourth quarter related primarily to working capital changes. For the year, our cash balance has increased $109 million to $249.6 million as of June 30, 2025. Available liquidity has increased to $284.5 million and is comprised of $224.6 million of unrestricted cash and $59.8 million of borrowing availability under the credit facility. The company also has $25 million of restricted cash to support the credit facility, and our debt position remains at zero. Subsequently, year-end, the company executed an amendment to the credit facility which extends its term until September of 2029, becoming in our fiscal 2026 in a strong financial position that provides the liquidity needed to support the execution of our backlog and to deploy capital toward growth. With that, I would like to turn the call over to John for some final remarks.

John Hewitt | President and Chief Executive Officer

Thank you, Kevin. In closing, I'd like to reiterate the following takeaways. First, despite some legacy legal issues and other noise during the fourth quarter, our team grew revenue consistently quarter after quarter, through the year and is executing above plan from a direct growth profit perspective on the work in hand. Second, our strategy is working. We are winning work in our key focus areas, maintaining our near record backlog, even in the face of the uncertain macroeconomic environment. Our organizational realignment is strengthening our platform and positioning the company for sustained profitable growth, both organically and inorganically. And third, our momentum into fiscal 2026 is strong with robust backlog and a strong opportunity pipeline. We are guiding the 70% revenue growth next year with 85% of that revenue from backlog that is already in progress. So with the tremendous momentum that exists across the business, we believe we are entering a prolonged period of growth. Above all, we remain committed to delivering sustainable shareholder value by building a platform capable of consistent profitability, backlog growth, and cash generation. I'm proud of what our team accomplished in fiscal 2025 and even more excited about the road ahead. By remaining disciplined, focusing on safety and quality, and continuing to improve our operations, we are confident in our ability to drive growth, create long-term value for our shareholders as we successfully win, execute, and deliver. With that, we'll open the call for questions.

Conference Operator | Operator

Thank you. At this time, we'll conduct the question and answer session. As a reminder to ask a question, you'll need to press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. And our first question comes from the line of John Franzrad of Sudorinco. Your line is now open.

John Franzrad | Analyst, Sudorinco

Good morning, everyone, and thanks for taking the questions. John, last quarter you kind of referenced the fact that some of the jobs are being pushed to the right due to economic uncertainty. Are you still seeing that?

John Hewitt | President and Chief Executive Officer

Yeah, I mean, I would say there's kind of an overhang across our industry, but I'd say we're really only able to point the finger at a couple of projects that were in our sites that you could say we're directly impacted by what's going on with tariffs and some of the global events. And I think it just sort of feels like there's an overhang. And most of those projects are probably really related to things that have more of a global involvement, meaning things that are exporting some kind of energy product. Let's say the internal stuff, the LNG peak shaving and backup fuel supply, There continues to be a lot of energy around those, no pun intended. And I think we're still seeing a lot of smaller projects kind of come through the pipeline. The major projects, those are just timing things. And they come and go. And they take a while for those to germinate. But we have some of the larger LNG peak shaving projects in our sites. And it just takes some time for those projects to develop. So from a domestic standpoint, I think we feel pretty good about the timing of an opportunity for awards there. Certainly, there's more attention from our clients around material escalation from tariffs. And those kinds of things become part of how we price and how we negotiate our contracts with various clients. But we've been fairly successful working through those risks with our new and existing clients.

John Franzrad | Analyst, Sudorinco

Got it. And when you look at the opportunity profile and you just reference some larger jobs that are out there maybe, do you expect to exit fiscal 2026 at a near 1.0 book to bill or is that too much to ask?

John Hewitt | President and Chief Executive Officer

No, I certainly think that opportunity is out there. You've been around us long enough that you know the timing of those awards certainly have a major impact. Things can slip a month here or there. But certainly what we see in our pipeline, the opportunity for us to book inside the, let's just say, our guidance range, revenue guidance range, I think those projects are out there. And, you know, the big – when we have these big upticks in our backlog, they come from a major project that we've booked that's in the $300 million, $400 million kind of range, where, you know, we have a couple of those in our backlog today, and we're looking for opportunities to replace those and build on those moving forward. So this year, I think our award cycle is going to be made up of smaller kind of – our normal sort of bread-and-butter projects, but smaller projects that are in – you know, 50 to 150 million kind of range. But we think those are out there and the opportunity for us to win those and hit a book to build a one is certainly available to us.

John Franzrad | Analyst, Sudorinco

That's good to hear. And just what's your confidence level on returning to profitability and that kind of timeline? How does that play out as the year progresses?

John Hewitt | President and Chief Executive Officer

I would say our confidence is high. We feel good about feel good about the quality of the backlog we have and the fact that the high quality backlog is in flight and that how that backlog is going to roll out over the course of the year, plus even some of the backlog that we added in fiscal 25 helps to fill some of the holes in fiscal 26 already. And so, you know, I think we feel pretty good about our revenue levels. And, you know, at the revenue levels we're projecting, you know, we're going to be in a position to be able to return the profitability.

John Franzrad | Analyst, Sudorinco

And one last question. I'll get back into Q. Cash positions building. Could you just talk a little bit about how much is that advance payment from customers and how much is matrix?

Kevin Cavanaugh | Vice President and Chief Financial Officer

So I'll take that. You know, the cash position has built considerably this year. You know, we've got a lot of long-term projects where we have seen some upfront money, but the balance sheet is strong. So we'll definitely use, you know, a good portion of that $250 million of cash for the projects. But we probably have, you know, cash available for, you know, just the normal level. If you look at what the working capital investment is currently, what the cash level is of $50 to $70 million that's, of built up cash for um just operating the business and it could also support growth um activity so um feel good about where we've got this balance sheet all right good to hear thank you kevin thank you john i'll get back to you thank you thank you one moment for our next question Conference Operator | Operator: And our next question comes from the line of Brent Dillman of DA Davidson. Your line is now open.

Brent Dillman | Analyst, DA Davidson

Thanks. Good morning, John, Kevin. I guess the first question just would be kind of back to some of the moving pieces of the quarter. Are you able to comment on other potential COVID era you know, legacy jobs that you're in dispute that, you know, we need to keep in the back of our minds? Or do we feel like, you know, we're kind of beyond this at this point?

John Hewitt | President and Chief Executive Officer

I think we're, I think anything of any materiality works pretty much beyond. This one particular project that we're talking about that took the $6 million charge, as Kevin had noted, you know, we've been fighting that. You know, we reached mechanical completion on the job back in, early 21. And we've been in dispute with a client since then. And we've we have attempted numerous occasions to get that settled and was unable to do that and ended up in, as Kevin said, in arbitration last month. And but yeah, that's really kind of the final material legacy pandemic issue that we've got.

Brent Dillman | Analyst, DA Davidson

Okay. And then maybe a two-parter to the restructuring actions you're taking would be, you know, one, Kevin, if you don't mind, just your expectations for the cost savings impact you should get from this. And I guess to any early indications or evidence of some of the things that you're doing that's you know, allowing you to win more work, you know, where are you seeing the positives of what you've been doing here to, you know, potentially, I guess, the bookings or any other measure we can look at?

John Hewitt | President and Chief Executive Officer

So I'll hit the second part of your question. Kevin can hit the first part. So, you know, we've made, you know, a lot of significant changes over the last five months. And, you know, right now we are kind of settling in. So we moved people around in the seats and got rid of some of the seats and so created opportunities for some of the people in the organization to step up and take some different new leadership roles. So I think we've created a lot of energy in the organization. You can feel a lot of energy in the organization. You know, like we said, we flattened and streamlined the decision making process. And, you know, so we are still kind of settling in the key strategies and objectives with the organization. We just met with the board two weeks ago and, you know, reviewed our strategy and our plans with them. But I think we're already seeing an improved alignment between different elements of the business and, you know, what we need to do to support each other, what we need to do to win work, what our real focus areas are uh from a market perspective and so i i think this this this change and as we're calling a realignment in the organization is really going to bear some fruit for not only on on how we win work but our ability to execute work particularly around work that's epc related where we've got you know the critical engineering deliverables Kevin Cavanaugh | Vice President and Chief Financial Officer: and then the our ability to execute that work on our projects yeah and when you look at the cost um you know we've as i mentioned we've cut out about 12 million with these these most recent actions that split about 50 50 between construction overhead and and sdna so it'll you know we were our sdna was been running just under 18 million a quarter in the fiscal 2025 i think you'll see it in the 16 and a half million range per quarter in fiscal 26. The construction overhead impact will help us address the construction overhead, combine the little bit lower cost structure with the increasing revenues. We'll continue to focus on eliminating the COH. So I think we made the right steps in the last couple of quarters.

Brent Dillman | Analyst, DA Davidson

Okay. I guess my last question is a little bigger picture, John. You know, there's been some fairly significant announcements here the last few days, and then related to the data center theme. And I guess the question for me would be, maybe if you could just elaborate, where does Matrix play into this, you know, whether directly or? you know, kind of second derivative of the things that are happening in that market that only seem to be getting bigger and bigger as we look out over the next few years. What are your cards to play and how does that pipeline that you have, what is it, how does it inform you about your opportunity there?

John Hewitt | President and Chief Executive Officer

Yeah, good question. So, I mean, we are not going to be the person who builds the data center, right? That's just not, that's not who we are. We don't, vision being being out there doing that that's a fairly highly competitive light industrial kind of market and so to make that step would be a pretty big leap but where we are going to play a role in both directly and indirectly is the demand for additional power generation everywhere and and the demand for backup power and the fuel for that power related directly related to data centers, you know, the AI computing, advanced manufacturing. So we see, you know, significant opportunities there. And if you recall, you've been around us long enough. I mean, we had a position in the gas-fired turbine construction market, both for in simple cycle, in a simple cycle mode and in combined cycle. for baseload generation so we have those skill sets you know we we turned our focus to other areas of construction as that market you know five six years ago kind of went you know in hibernation but this growing demand for power which we don't see is something that's going to stop and so it's related not only to the increased demand related to what we talked about here in data centers and ai but just in general the general electrification of everything You know, it's just requiring more power generation. You've got more in spite of some of the, you know, the rhetoric coming out of Washington, we're still probably going to be retiring coal fleets and moving more to a gas-based power generation economy. And then you've got the opportunity for interconnect, for substation work. We've done, for a couple of data centers, we've done the substation work and the interconnect work for them. A lot of those data centers have high demand for cooling. And so some of that is more of a more complex process installation than what you might normally have in a light industrial facility, which could create opportunities for us. So our opportunities and our work around there will be a little bit more on the fringe. And then just the demand for generation, not only the installation of of um base load generation and backup generation but also the gas required to fuel it you know pushing that back into the utilities with the work that we're doing and and uh peak shaving facilities the work that we're doing and and uh backup fuel supply for utilities uh the upgrading you know a couple of our awards in the quarter here were related to existing LNG peak shaving facilities that hadn't been updated for 30 years. And so we're going in and doing, in some cases, the full EPC to update the process equipment and not even necessarily the storage, but the process equipment of those existing LNG Unknown Speaker: Hello.

Kevin Cavanaugh | Vice President and Chief Financial Officer

So I think we're back online. Sorry about that. We had technical difficulties. Brent, I was going to follow up on, if you're still there, follow up on the cost question you had. You know, an important aspect of what those actions do is also decreases our break-even point. You know, the amount of revenue we need in order to get to break-even performance. You know, in the past, we've talked about that. It was around $225 million per quarter. With these reductions now, it's down to 210 to 215 million per quarter. And so that's definitely a benefit to us, increasing the earnings power of the business as we move forward. So I just wanted to follow up with that and turn it over to Kelly for closing remarks.

Kelly Smith | Senior Director of Investor Relations

Thank you, Kevin. As a reminder, we will be... participating in the DA Davidson 24th Annual Diversified Industrial and Services Conference in Nashville next week, September 17th through the 19th. If you are attending, we look forward to seeing you there. Additionally, if you'd like to have a conversation with management, please contact me through 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 so much for your time.

Conference Operator | Operator

Thank you for your participation in today's conference. To just conclude the program, you may now disconnect. jsPDF 3.0.3 D:20260606090253-00'00'

NASDAQ:MTRX Q3 2025 Earnings Call Transcript Generated on 6/6/2026 Operator | Conference Call Operator: Good morning and welcome to the Matrix Service Company conference call to discuss results for the third quarter of fiscal 2025. 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. Kelly Smyth, Senior Director of Investor Relations for Matrix Service Company.

Please go ahead. Kelly Smyth | Senior Director of Investor Relations

Thank you, Didi. Good morning, and welcome to Matrix Service Company's third quarter fiscal 2025 earnings call. Participants on today's call include John Hugh, a President and Chief Executive Officer, and Kevin Cavanaugh, 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 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. The forward-looking statements made today are effective only as of today. To the extent we use 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. Related to investor conferences and corporate access opportunities, Matrix will be participating in the Sidoti MicroCAP Virtual Conference on May 21st and 22nd, and will also be participating in the CIFL Cross-Sector Insights Conference on June 3rd and 4th in Boston. If you'd like additional information on these events or would like to have a conversation with management, I invite you to contact me through the Matrix Service Company Investor Relations website. Turning now to safety. At Matrix, our people take pride in the fact that our work shapes a brighter future, enhances quality of life, and generates lasting value for our employees, partners, shareholders, and the communities we serve. We do so by engineering, constructing, and maintaining energy and industrial infrastructure that elevates the standard of living, not just here, but around the globe. This infrastructure is essential for powering our homes, fueling transportation, supporting businesses, and providing the foundational elements for producing clothing, medicine, technology, recreational activities, among many other things. To fulfill our objectives on our work sites, and in our offices, we must maintain a steadfast commitment to the safety as our leading core value and prioritize quality execution in our work. This week, we join our clients and others in the construction industry for the Construction Safety Week 2025, marking the 12th annual industry-wide initiative dedicated to highlighting the importance of safety in the workplace. At Matrix, our safety culture is rooted in a genuine concern for the mental and physical well-being of our people. It shapes our expectations and forms our leadership and is vital to our ability to realize our mission. On behalf of the company's leadership team, I would like to express my gratitude to the employees for our commitment and responsibility in safely pursuing our mission.

Operator | Conference Call Operator

I turn the call over to John.

Didi | Conference Call Moderator

Thank you, Kelly, and good morning, everyone.

John Hugh | President and Chief Executive Officer

I want to begin by reviewing the organizational improvements we are making that represent a shift in the company's operational structure that will address several key business imperatives. Among them, creating a more efficient organization to ensure we deliver on the significant projects and opportunities in front of us, improving the competitiveness of our offering and strategic focus, and benefiting from the greater speed and agility through a leaner, flatter organization. First, we eliminated senior level positions to ensure we have a more efficient and effective organization. Second, from an operating perspective, we have streamlined our engineering and construction services to create a more seamless offering. Specifically, we recently promoted Sean Payne to the newly created position of President of Engineering and Construction. The new position will have oversight responsibility of the company's operating subsidiaries and client services. John joined Matrix in 2012 and most recently served as president of the company's non-union construction subsidiary. John will report directly to me. Third, we are decentralizing elements of our business development organization to create a more integrated sales and operations function. The large EPC projects get a significant amount of attention across the enterprise during the proposal process. These projects are critical to our growth strategy But the foundational services of our business in small capital construction, construction only, turnarounds, maintenance, and repair are equally important to the baseload revenue for the company. Directly reconnecting the business development teams to the P&L leaders will create more momentum, opportunities, and awards for this part of our revenue platform. These foundational services deepen customer relationships, build bench strength, and keep us competitive. Overall, this reorientation of the business development function will improve capture rates, growth strategies, and ultimately revenue across the company. Finally, the company has begun the process of winding down our northeast transmission and distribution service line. This piece of our ongoing electrical business was competitively disadvantaged due to a mismatch in scale and constrained geography. Growth and scale was highly dependent on capital and strategic investments that do not currently fit the company's direction. While this may seem sudden, the lack of sufficient wards throughout the year confirmed our decision to exit the service line. That said, Matrix has been in the electrical services business in the Northeast, Mid-Atlantic, and Ohio Valley for over 20 years and will continue to provide services to our utility, energy, and industrial customers as they face rising demand for electrical infrastructure. This infrastructure includes power generation, backup fuel supply, midstream energy infrastructure, manufacturing expansion, substations, and data centers, to name a few. The electrical infrastructure market presents strong growth potential, and its capital investment demand aligns better today with our long-term business performance targets. As Matrius continues its progress toward a return to profitability with marked improvement in its financial performance, we must continue to the future i am confident this new structure will enhance communication accountability and collaboration throughout all levels of the organization in line with our strategic priorities we remain committed to delivering sustainable long-term shareholder value by building a resilient growth-oriented platform that meets the evolving needs of our customers from a market outlook perspective we are also closely monitoring the impacts of evolving u.s trade and environmental policies that have introduced a heightened level of macroeconomic uncertainty. While the underlying demand environment remains strong, some clients may elect to delay final investment decisions, and in turn, project starts as they assess the potential impact of these policies on project economics, including uptake agreements with global partners, as well as supply chain and operational costs. However, we believe this uncertainty to be temporary. Specific to existing projects and new awards, our contract formats and proposal discipline generally protect us from pricing risks created by the tariff activity. In addition, we are actively collaborating with our customers to find cost optimization opportunities. We're also optimizing our own supply chain by making advanced purchases where we can, working closely with our current suppliers, and exploring additional supplier options. This proactive strategy enables us to remain agile and responsive to market changes and ensures we continue to provide outstanding value to our customers. At the same time, several of our energy clients have stated that their intentions are to fund, start and complete as many infrastructure projects as possible over the next four years to take advantage of the more relaxed regulatory environment and higher demand for energy products both domestically and abroad. Considering the current macroeconomic environment and our decision to exit the transmission and distribution business, we believe it is prudent to revise our fiscal 2025 revenue guidance by 10% to $770 to $800 million, which Kevin will discuss in more detail during his remarks. Please note, our revised guidance continues to reflect quarter-over-quarter growth as we finish the year, as demonstrated by the 20% to 25% growth in the second half of fiscal 2025 compared to the first half. across the energy and industrial markets we serve, energy-related infrastructure spending remains elevated. The elevated level of spending is supported by an estimated 45% increase in U.S. LNG export demand, as highlighted by the EIA in its recent annual Energy Outlook. Furthermore, the EIA Outlook also projects an 8% increase in demand on the 38 trillion cubic feet of natural gas over the next six years in response to rapidly growing domestic and international demand for LNG and other natural gas-related products. This outlook underpins our $7 billion pipeline of project opportunities, which gives us confidence in achieving a sustainable and profitable growth trajectory as we move into fiscal 2026 and beyond. As a reminder, many of the projects we are currently pursuing are expected to be bid and awarded within the next 12 to 18 months, And once awarded, they will unfold over multi-year construction timelines, providing us with long-term revenue visibility and improved earnings consistency. Now turning to the quarter. Revenue volume continued to accelerate, culminating in our highest quarterly revenues in two years as project activity ramped up throughout the period. As typical for our fiscal third quarter, we also benefited from elevated activity in our refinery services business. The company grew backlogged by nearly 8% sequentially to over $1.4 billion on 301 million of project awards, resulting in a book-to-bill of 1.5. This also increased our year-to-date book-to-bill to a 1.0. Storage and Terminal Solutions accounted for $205 million of the quarterly awards, which increased its backlog to $848 million, the highest level in the company's history. The quarter activity included a project for the engineering and construction of multiple storage vessels for propane, butane, and related NGL products. We're also seeing strength in the process and industrial facility segment, which had 59 million in awards, primarily in our refinery services business. Overall, our strategy remains anchored around three pillars, the win, execute, and deliver. Through this framework, we will continue to focus on project discipline with the right clients, commercial structure, and timing of delivery. Apply our resume and brand leadership to not only our core markets in energy, industrial, and power infrastructure, but also expanding into new high-value verticals. Delivering projects safely, on time, on budget, and with high quality. And enhancing operating leverage to drive strong profitability, cash generation, and disciplined capital deployments. As you look ahead to the fourth quarter, we believe the momentum exiting the third quarter, combined with the strategic actions I spoke of earlier, will support improved fixed cost absorption, better operating leverage, and resulting in positive adjusted EBITDA. Furthermore, we are confident that potential near-term project awards, some of which are insulated from recent macroeconomic developments, will help us end the year with a full year book-to-bill ratio of round one. With that, I now turn the call over to Kevin.

Kevin Cavanaugh | Vice President and Chief Financial Officer

Thank you, John. Revenue growth continued in the third quarter, increasing 21% to $200.2 million compared to $166 million in the third quarter last year. The growth was driven by the storage and terminal solutions and utility and power infrastructure segments, partially offset by reduced revenue volumes in process and industrial facilities. Gross margin was $12.9 million, or 6.4% in the quarter compared to 5.6 million or 3.4% for the third quarter of fiscal 2024. I will discuss drivers for that improvement when I get into the second results, but want to provide an update here on the impact of under recovery of construction overhead costs. As a result of the revenue growth in the quarter, the impact of under recovered overhead decreased to 280 basis points This compares to 370 basis points last year and is the lowest level in two years. As the revenue ramp continues, construction overhead will become fully recovered and the negative impact on margins will be eliminated. SG&A expenses were $17.7 million in the third quarter compared to $19.9 million for the prior year. The decrease is primarily due to lower cash settled stock-based compensation expense. For the third quarter of fiscal 2025, the company had a net loss of $3.4 million, or $0.12 per share, compared to a net loss of $14.6 million, or $0.53 per share, in the third quarter of fiscal 2024. Adjusted EBITDA proved to break even in the quarter, compared to a loss of $10 million in the third quarter last year. Moving to the segments, storage and thermal solution segment revenue increased 77% to 96.1 million in the third quarter compared to 54.3 million in the third quarter of fiscal 2024. Higher revenue is being driven by an increased volume of work for specialty vessel projects. Gross margin was 3.9% in the third quarter of fiscal 2025 compared to 4.3% in the third quarter of fiscal 2024. Although higher revenue has resulted in improved leverage of our cost structure, Segment gross margin continues to be impacted by under recovery as we allocate more resources to this segment in anticipation of continuing revenue growth. Additionally, the third quarter of fiscal 2025 was negatively impacted by lower than anticipated labor productivity on a crude terminal project that is nearing completion. Excluding the margin adjustment on this project, the year-to-date project execution The storage and thermal solution segment would have been within our 10 to 12% target. As quarterly revenue continues to increase, the company expects to achieve full recovery of construction overheads and the targeted gross margin range. Utility and power infrastructure segment revenue increased 27% to $58.7 million in the third quarter compared to $46.1 million in the prior year period. benefiting from a higher volume of work associated with natural gas peak shaping projects. Gross margin was 9.4% in the third quarter compared to 3.1% for the third quarter of fiscal 2024 due to strong project execution and improved construction overhead cost absorption. Costs as an industrial facility segment revenue decreased to 45.4 million in the third quarter The fiscal 2025 compared to $65.6 million last year, primarily due to lower revenue volumes resulting from the completion of a large renewable diesel project. The company believes this reduction is temporary given our strong backlog and opportunity funnel. Gross margin was 8.3% in the third quarter compared to 2.7% for the third quarter of fiscal 2020. Last year's gross margin was impacted by an accounting adjustment on a refinery maintenance contract. Last quarter, I discussed some keys to our financial performance. Before we move away from operating results, I want to review those keys and our long-term financial targets. First, revenue level is critical to our earnings. Revenue growth started in the second quarter and continued in the third. We anticipate revenue growth to continue, reaching $250 million and above. Second, project execution has been strong, producing overall direct project margins that are approaching our target range. focus on project execution continues, and the margin opportunity within our $1.4 billion backlog and our $7 billion opportunity funnel continues to support a long-term consolidated gross margin target of 10% to 12%. Third, the company continues to proactively manage its cost structure and is taking additional steps to improve our operating effectiveness, as John discussed. This will enhance our competitiveness and allow for continued improvement in the leverage of our cost structure. Construction overhead recovery has been a significant issue that is improving and will be eliminated based on anticipated revenue growth. Leverage of SG&A will also improve due to flattening of the organization as well as revenue growth driving toward our target of 6.5% of revenue. Finally, the combination of these items will drive the improved performance toward Didi | Conference Call Moderator: or long-term targets.

Kevin Cavanaugh | Vice President and Chief Financial Officer

Moving to the balance sheet, our distal approach to capital allocation remains a cornerstone of our strategy. Working capital management has been strong throughout fiscal 2025. Net cash provided by operating activities was $31.2 million during the third fiscal quarter and $76.8 million year-to-date. Cash flow activity during the year has also further strengthened our balance sheet. Available liquidity has increased to $247.1 million as of the end of the quarter. Liquidity is comprised of $185.5 million of uninsured cash and $61.5 million of borrowing availability under the credit facility. The company also has $25 million of restricted cash to support the credit 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 execution of our backlog and to deploy capital toward opportunistic organic growth. Before we open the call for questions, I want to touch on outlook. As we noted in our press release, second half revenue levels have been impacted by the timing of awards in the third quarter, as well as the uncertainty around macroeconomic and environmental policy. In addition, Full-year revenue has been impacted by our transmission distribution business, which we are now exiting. The full-year revenue impact of exiting this business is approximately $15 million. As a result, we reduced revenue guidance for fiscal 2025 by 10% to $770 to $800 million. Even with this reduction, this implies continued strong year-over-year growth of over 20% in the fourth quarter and a return to profitable performance. Our backlog and revenue growth is coming from larger, multi-year projects. As a result, we expect to operate at or above these levels, revenue levels, for the foreseeable future. This, combined with the changes we are making to improve operating effectiveness, should lead to strong bottom-line results and the achievement of our long-term targets. This concludes our prepared remarks, so we will open it up for questions.

Operator | Conference Call Operator

Thank you. To ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. And our first question comes from John Fransrap of Sidodian Company.

Your line is open. John Fransrap | Analyst, Sidodian Company

Good morning, everyone, and thanks for taking the questions. I guess I'd like to start with the revenue guidance. Kevin, you just said $50 million was baked into that business, I guess, for this fiscal year. Can you just walk us through the decision-making process to exit the business? Is there a potential buyer out there? Will you just wind it down? And what's the relative cost savings from exiting that business?

John Hugh | President and Chief Executive Officer

I'll give you some of the strategic stuff there, John.

Didi | Conference Call Moderator

So going into the year, the market for the business was higher than $50 million.

John Hugh | President and Chief Executive Officer

But because we're, probably simply put, we're too big to be small and too small to be big. And so our competitive dynamics in that business made it difficult for us to win work at acceptable margins. And plus the capital... investment in that business would be dramatically higher than the rest of the company. So it was sort of on our watch list this year that if we were able to pick up some good projects with acceptable commercial terms, then it would modify or at least would guide our decision whether we thought there was an opportunity to continue to grow it or that we needed to sell it or that we needed to just shut it down. So as we moved into that, and what we saw was the opportunity for us to win some nice projects in the back half of the fiscal year, and we didn't win any of them. And so trying to win those projects around the commercial framework that we think is acceptable to the business. So when we started to see that those projects were not going to come into our backlog, we made the decision that we're going to wind the business down, you know, without any kind of a positive looking backlog, it'd be difficult to find a buyer for the business. We're just there picking up equipment and people. So, so we made the decision that we just wind the business down and we'll eventually sell off some of the construction assets that are associated with that business. We still have some, small contracts that we're going to be working on out into fiscal 26, but doesn't represent a lot of revenue. And we're doing that with clients that we do other business with. So we just don't want to, you know, just walk away from those jobs, which you can't contractually anyway. But so we want to continue to support those clients because, again, because they have other work that our electrical business does.

Didi | Conference Call Moderator

That's kind of how we got to where we are. Understood. And the potential cost savings?

Kevin Cavanaugh | Vice President and Chief Financial Officer

You know, it's more about there are cost savings, you know, but there's also a reallocation of some resources to the electrical instrumentation business that we're keeping. And then I think, you know, that business has been operating at a loss, so that's probably the bigger savings than the cost structure. It was a relatively low overhead business other than the equipment. And the reason for that is that this was a business that we grew organically.

Didi | Conference Call Moderator

This wasn't from an acquisition.

John Fransrap | Analyst, Sidodian Company

Okay, fair enough, Kevin. The other part of the adjustments to the revenue guidance was what you said was deferrals. I'm curious, is the entire balance deferrals or some cancellations? And the deferrals, what kind of timing are we talking about now versus three months ago?

John Hugh | President and Chief Executive Officer

So some of it is a combination of a couple things. You know, one is that one of the major projects that was in the awards for the Q3, which was in storage, you know, we had anticipated actually winning in Q2 and had started negotiating a contract for that project in Q2. And as we moved into Q3, you know, we thought that that project would get awarded in January. and that we'd be able to get engineering started, we'd be able to get our procurement for all the plate steel associated started, and probably get on site and start doing some of the civil work. So we had expected an earlier award and revenue flowing from that project impacting this fiscal year's revenues. But we actually don't sign the contract to the very last day in March. And so basically what that did is pushed all the majority of what we thought was going to be some revenue off that project into June and probably into fiscal 26. So that's one thing. And that's just about how long it took to put the contract together, which is not necessarily unusual. And then we got another project that we've been Kind of verbally selected on that one of his off takers for that client is in the is on the other side of the ocean and with some of the trade stuff is going on. There's been a though they've been a delay and getting that off take sold. We think that delays over with and are expecting you know that project to move forward here. You know within the next within this quarter or the first quarter 26 so. Other than that, I mean, I think it'd be unreasonable for us to assume that these uncertainties around the tariff issues and finalization of environmental policy in a regulatory environment isn't keeping clients a little bit hesitant in some cases on how they're going to spend their capital dollars. But I can tell you we've had several of our core clients tell us very strongly that their intentions are over the next four years to spend as much money as possible on their energy infrastructure and what they perceive to be a much easier regulatory environment. And so we're excited about that, excited about us being able to take advantage of that opportunity because, A, because of our strong relationship with these clients, and two, because of the kind of services and strong brand position we have in those markets.

Didi | Conference Call Moderator

Got it, John.

John Fransrap | Analyst, Sidodian Company

And one last question. You mentioned that you're targeting smaller jobs. Can you talk a little bit about what you think the opportunity profile is as you reengage in some of those smaller projects, maybe size it for us and timeline it when you expect to start hitting on them?

John Hugh | President and Chief Executive Officer

Yeah, so we, I mean, we as an organization, our history in our organization has always been a mix in the portfolio of maintenance work, turnaround work, small capital projects, construction only projects mixed in with one or two large capital EPC jobs. So and we continue to see the opportunity for these larger EPC projects to continue to enter the backlog and probably for us in a more thoughtful way that they fit into our execution plans and our resource availability. But that doesn't minimize the need in our business for this smaller activity that I've laid out. And I think, you know, part of our change in the development structure is we've sort of lost touch with that a little bit. I think these larger projects get a lot of attention from the organization. But we need those smaller projects. They build relationships with clients. They help us to build and strengthen our execution teams. They're great for brand recognition. They eat overhead. And so we just need to do a better job of pursuing and winning those smaller, what I'm calling foundational elements of our business moving forward. And so some of the actions, strategic actions we've taken are directly related to our desire to be better at that than we have been over the past 18 months.

John Fransrap | Analyst, Sidodian Company

Okay, well, good luck with that. I'll get back into queue. Thank you, gentlemen.

Didi | Conference Call Moderator

Thank you.

Operator | Conference Call Operator

Thank you. And our next question comes from Brent Tailman of DA Davidson.

Your line is open. Brent Tailman | Analyst, DA Davidson

Hey, thanks. Good morning. John, real big picture question here. I mean, you've been through your share of cycles in the past and value of your perspective here. But look, the geopolitical macroeconomic environment today, you take what you're seeing now, you look at prevailing commodity prices to some degree influence how your customers spend. I guess my question is, John, I mean, how is all this stuff that we're seeing in the market, how do you think it might influence what your customers may end up doing here not necessarily in the short term but but thinking medium term is all of this ultimately a positive driver for your business i just you know love your perspective there well i think you know what there's tariffs or no matter what it is we see in the media there's a lot of rhetoric running around both out of the washington dc and out of the media houses and across the globe John Hugh | President and Chief Executive Officer: So I think it's difficult for all of us, whether you're a business leader or a normal citizen, to figure out what the future looks like. But for me, I think, and what we hear from our clients, I think they're adding some more thoughtfulness to what their capital plans are. But I think overriding all of that is the, not only domestically, but globally, the demand for energy is continuing to rise. That demand has got to be met. It is not necessarily going to be 100% met by renewable energy sources. You've got huge electrical infrastructure needs in the U.S. alone to fuel the growth in power demand. And so I think irrespective of all the terrorist things settled out, which I personally think will get settled out here over the next three or four months, think we're still going to see a lot of infrastructure put in place. We're going to see this huge demand globally for NGLs coming out of the U.S. and for LNG because, I mean, face it, the demand for energy is growing, like I said, and it supports a higher quality of life around the globe, and there's a lot of instability in the energy sources, and people are going to be looking to the U.S. to provide that stability. So I'm I'm pretty bullish and confident in the markets that we're in with our brand position, particularly around specialty vessels and specialty vessel storage and infrastructure, that we're going to play a strong role in that as we look out to the future.

Brent Tailman | Analyst, DA Davidson

Yep. I appreciate that. And then I guess another one, Kevin, this might be more for you, but And there's been an expectation for sort of a progressive ramp in volume and revenue as the fiscal year's played out. And I think maybe more specific to storage, I mean, you had terrific growth compared to last year, but the growth was somewhat muted relative to the previous quarter. So, as you kind of look at the fourth fiscal quarter, is there enough confidence here that we should see that segment step up? I think that's sort of critical to support the outlook. And I guess maybe the question is, are you seeing the critical jobs moving forward now in that segment that really should contribute here?

Kevin Cavanaugh | Vice President and Chief Financial Officer

Yeah, so you're right. The revenue was, you know, in Q3 was pretty consistent with Q2. Part of that was just timing of procurement. Now, when we're looking at 4Q, I'm expecting to see a really strong growth cycle. in the storage and terminal solutions segment. So, I think that is supportive of the outlook. I think you'll also see some growth in utility and power infrastructure. You know, process and industrial facilities took a step up this third quarter. I would expect it to be somewhere close to that same level here in the fourth quarter. So, the combined should have a strong upward movement Didi | Conference Call Moderator: revenue level for 4Q. Got it. I think that'll benefit overhead recovery and the gross margin percentage in a significant way. Perfect. Okay. That's all I had.

Thank you. Operator | Conference Call Operator

Thank you. This concludes our question and answer session. I would now like to turn it back to Kelly Smyth, Senior Director of Investor Relations, for closing remarks.

Kelly Smyth | Senior Director of Investor Relations

Thank you. As a reminder, we will be participating in the Sedoti Microcap Virtual Conference on May 21st and 22nd. We'll also be attending the Stiefel Cross-Sector Insights Conference on June 3rd and 4th in Boston. Additionally, 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 Matrix news by scanning the QR code on your screen.

Thank you for your time. Operator | Conference Call Operator

This concludes today's conference call. Thank you for participating, and you may now disconnect. jsPDF 3.0.3 D:20260606090254-00'00'