Q2 2022 Matrix Service Co Earnings Call
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Speaker 2: ["Pomp and Circumstance"]
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Speaker 1: Good day, and thank you for standing by, and welcome to the Matrix Service Company conference call to discuss results for the second quarter fiscal 2022. At this time, our participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session.
Good day, and thank you for standing by and welcome to the Matrix Service Company Conference call to discuss results for the second quarter fiscal 2022.
At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session.
Speaker 1: To ask a question during the session, you'll need to press star 1 on your telephone. Please be advised that this call is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your host today, Kelly Smye, Senior Director of Investor Relations.
Ask a question during this session you will need to press star one on your telephone please be advised that this call is being recorded.
If you require any further assistance. Please press star zero I would now like to hand, the conference over to your host today Kellie Smythe senior director of Investor Relations.
Go ahead.
Speaker 3: Thank you, Justin. Good morning and welcome to Matrix Service Company's second quarter of fiscal 2022 earnings call. Participants on today's call will include John Hewitt, President and Chief Executive Officer, and Kevin Cavanaugh, Vice President and Chief Financial Officer. The presentation materials we will be referring to during the webcast today can be found under events and presentations on the investor relations section of MatrixServiceCompany.com.
Thank you guys, Ken Good morning, and welcome to Matrix service company's second quarter of fiscal 2020 earnings call participants on today's call will include John Hewitt, President and Chief Executive Officer, and Kevin Cavanah, Vice President and Chief Financial Officer.
Patient materials, we will be referring to during the webcast today can be found under events and presentations on the Investor Relations section of Matrix Service company Dot com.
Speaker 3: Before we begin, please let me remind you that on today's call we may make various remarks about future expectations, plans and prospects for matrix service companies that constitute forward-looking statements for the purposes of the Private Securities Litigation Reform Act of 1995.
Before we begin please let me remind you that on today's call we may make various remarks about future expectations.
<unk> and prospects for matrix service company that constitute forward looking statements for the purposes purposes at the private Securities Litigation Reform Act of 1095.
Speaker 3: Actual results may differ materially from those indicated by these forward looking statements as a result of various factors, including those discussed in our annual report, on Form 10K for our fiscal year ended June 30 of 2021.
Actual results may differ materially from those indicated by these forward looking statements as a result of various factors, including those discussed in our annual report on Form 10-K for our fiscal year ended June 32021.
Speaker 3: and in subsequent filings made by the company with the SEC. To the extent that we utilize non-GAT measures, the reconcilations will be provided in various press releases, periodic SEC filings, and on our website. I will now turn the call over to John Hewitt, president and CEO of Major Service Company. Thank you, Kelly. Good morning, everyone, and thank you for joining us. I wanna kick off today's call with a thank you to our employees across the business.
And in subsequent filings made by the company with the SEC to the extent that we utilize non-GAAP measures reconciliations will be provided in various press releases periodic SEC filings and on our website I will now turn the call over to John Hewitt, President and CEO of Matrix Service company.
Thank you Kelly and good morning, everyone and thank you for joining us I want to kick off today's call with a thank you to our employees across the business. Whether you are a trades person administrative team member on a project or an office or a member of our engineering team. We appreciate that the past two years have been challenging for you and both through personal and professional lives at a company.
Speaker 4: Whether you are a tradesperson and administrative team member on our project or in an office or a member of our engineering team, we appreciate that the past two years have been challenging for you in both your personal and professional lives. At a company level, these challenges have been a catalyst to make us better.
Level. These challenges have been a catalyst to make us better.
Speaker 4: It has caused us to rethink strategies, markets, and structure. And we are changing the business. The one thing that will not change is our values. And while many difficult decisions have had to be made, we will always stay grounded by our values of integrity.
It has caused us to rethink strategies markets and structure and we are changing the business. The one thing that will not change is our values and while many difficult decisions had to be made we will always stay grounded by our values of integrity caring and stewardship, while delivering the best with a high level of quality and soup.
Speaker 4: caring and stewardship while delivering the best with a high level of quality and superior safety.
Carrier safety, Thanks to all of you as we build the foundation for success and sustainability.
Speaker 4: Thanks to all of you as we build a foundation for success and sustainability.
Speaker 4: Now before I turn the call to Kevin to discuss our second quarter results, I want to briefly highlight how the recovery in our end markets is resulting in an acceleration in awards from our opportunity pipeline. As noted in our earnings release, this is our second consecutive quarter with a book to bill of over one. Through the first half of our fiscal year, we achieved a book to bill of 1.4 on awards of 459 million.
Now before I turn the call to Kevin to discuss our second quarter results I want to briefly highlight how the recovery in our end markets is resulting in an acceleration in awards from our opportunity pipeline as noted in our earnings release. This was our second consecutive quarter with a book to bill of over one through the first half of our fiscal year.
We achieved a book to Bill of one four on awards of $459 million to put this into perspective first half Award awards or more than twice as high as awards in the same period last year and already exceed total awards for the entire fiscal 2021.
Speaker 4: put this into perspective. First half of the awards were more than twice as high as awards in the same period last year. In our ready exceed total awards for the entire fiscal 2021.
Speaker 4: These awards come as we see further market recovery and returning confidence from our clients whose infrastructure assets span North America and beyond. Positive market dynamics combined with a more focused and total solutions approach by our centralized business development organization is resulting in the rebuilding of our backlog. Remember, however, there is an inherent lag between the time our project is awarded and when it begins to have a material impact on revenue.
These awards come as we see further market recovery and returning confidence from our clients, whose infrastructure assets spanned North America and beyond positive market dynamics combined with a more focused and total solutions approach by our centralized business development organization is resulting in the rebuilding of our backlog.
Remember however, there is an inherent lag between the time a project is awarded and when it begins to have a material impact on revenue.
Speaker 4: In some cases, this lag can be upwards of three months, depending on the finalization of scopes, contracts, permits, and facility process requirements.
In some cases this lag can be upwards of three months, depending on the finalization of scopes contracts permits and facility process requirements are growing backlog, which now stands at $592 million will the level deliver sequential improvements in our quarterly results as we progressed through the year.
Speaker 4: our growing backlog, which now stands at $592 million, will the level delivers sequential improvements in our quarterly results as we progress through the year and ultimately to profitability in our fourth fiscal quarter. I'll discuss our market outlook and the progress we are making to take advantage of the opportunities in front of us shortly. But first, let me hand a call over to Kevin to discuss our segment and consolidate the results.
<unk> and ultimately to profitability in our fourth fiscal quarter I will discuss our market outlook and the progress we are making to take advantage of the opportunities in front of us shortly but first let me hand, the call over to Kevin to discuss our segment and consolidated results.
Speaker 4: Thanks, John . I'll start with consolidated results. Revenue was 162 million per second quarter, which was in the range of our expectations. Gross margins were 2% in the quarter. The most significant impact to margins was the under recovery of construction overhead costs, which negatively impacted gross margins over 500 basis points for all three seconds.
Sean I'll start with consolidated results revenue was $162 million for the second quarter.
Which was which was in the range of our expectations gross margins were 2% in the quarter.
Most significant impact on margins was the under recovery of construction overhead costs, which negatively impacted gross margins over 500 basis points for all three segments.
Speaker 4: We expect this to improve as revenue volume increases through the last half of the fiscal year. Gross margins were also impacted by a lower than previously forecasted margin on repair projects.
We expect this to improve as revenue volume increases there in the last half of the fiscal year gross margins were also impacted by a lower than previously forecasted margins on repair project.
Speaker 4: Consolidated S-GNA expenses were 15.9 million in the three months ended December 31, 2021.
Consolidated SG&A expenses were $15 9 million in the three months ended December 31 2021.
Speaker 4: which is below as quarterly SGNA in over eight years. We also incurred 700,000 of restructuring costs in the quarter related to additional cost reduction efforts.
Which is the lowest quarterly SG&A in over eight years, we also incurred 700000 of restructuring costs in the quarter related to additional cost reduction efforts.
Speaker 4: One other item impacting earnings in the quarter was a $14.2 million non-cash valuation allowance placed on deferred tax assets comprised primarily of federal and state in the well.
One other item impacting earnings in the quarter was a $14 $2 million noncash.
Noncash valuation allowance placed on deferred tax assets comprised primarily of federal and state Nols.
Speaker 4: Although the majority of these assets do not expire and the company expects to utilize the assets when it returns to proper ability, the valuation allowance was required by US cap and impacted earnings per share by 53 cents.
Although the majority of these assets do not expire and the company expects to utilize the assets when it returned to profitability. The valuation allowance was required by U S GAAP and impacted earnings per share by 53.
Speaker 4: Utilizing NOLs in future periods will have a positive impact on earnings by significantly lowering our effective tax rate. As a result, we now expect our effective tax rate to be in the single digit.
Utilizing nols in future periods will have a positive impact on earnings by significantly lowering our effective tax rate as a result, we now expect our effective tax rate to be in the single digits.
Speaker 4: For the three months ended December 31st, 2021, we have an adjusted net loss of 10.2 million and adjusted earnings per share of $0.38.
For the three months ended December 31, 2021, we had an adjusted net loss of $10 2 million and adjusted earnings per share of <unk> 38.
Speaker 4: including the impact of the tax asset valuation allowance and restructuring costs according quarterly net loss was $24.9 million and the loss per share was 93 cents.
Including the impact of the tax asset valuation allowance and restructuring cost Accordingly quarterly net loss was $24 9 million and the loss per share was <unk> 93.
Speaker 4: Moving to segment results, revenue for the utility and power infrastructure segment was 55 million in the second quarter, producing a segment gross margin of a negative 0.9%. The segment gross margin was impacted by two issues. First, low volumes led to the under recovery of production overhead costs. And second, we are working through projects that were marked down in previous periods and projects that were big competitively. and therefore present a lower margin opportunity.
Moving to segment results.
Revenue for the utility and power infrastructure segment was $55 million in the second quarter producing segment gross margin of a negative <unk>, 9% the.
The segment gross margin was impacted by two issues first low volumes led to the under recovery of construction overhead cost and second we are working.
Going through projects that were marked down in previous periods and projects that were bid competitively and therefore present, a lower margin opportunities.
Speaker 4: We expect increased revenue volume and recovery of overhead costs as we move through the fiscal year to resolve and improve segment operating results.
We expect increased revenue volume and recovery of overhead cost as we move through the fiscal year to result in improved segment operating results.
Speaker 4: Revenue for the process and industrial facility statement was $15 million in the border.
Revenue for the process and industrial facilities segment was $50 million in the quarter.
Speaker 4: Revenue volume does not yet materially reflect the strong project awards one over the last two quarters.
Revenue volume does not yet materially reflect the strong project awards won over the last two quarters.
Speaker 4: We expect to begin to see that benefit later in the third quarter. As a reminder, we have booked over $210 million of awards for this segment in the first two quarters of fiscal 2022, resulting in a book to bill of 2.2.
We expect to begin to see that have been a bit later in the third quarter. As a reminder, we have booked over $210 million of awards for this segment in the first two quarters of fiscal 2022 <unk>.
Resulting in a book to Bill of two two.
Speaker 4: These awards include some larger capital projects that are still in preliminary stages of engineering and design.
These awards include some larger capital projects that are still in preliminary stages of engineering and design.
Speaker 4: The quarterly second gross margin was 8.4%.
The quarterly segment gross margin was eight 4%.
Speaker 4: Despite strong project execution, margin was impacted from the Hender recovery of construction overhead costs caused by low revenue volume.
Despite strong project execution margin was impacted from.
From the under recovery of construction overhead costs caused by low revenue volume.
Speaker 4: The story's internal solutions segment produced 57 million of revenue in the second quarter. The segment had a book to bill of 1.3 for the first half of the year and on over 156 million of project awards. As a result, we will begin to see revenue volume benefit as recently awarded project against November 1st in 2021.
The storage and terminal solutions segment produced $57 million of revenue in the second quarter. The segment had a book to Bill of one three for the first half of the year and on over $156 million of project Awards. As a result, we will begin to see revenue volume benefit as.
As recently awarded projects ramp up.
Speaker 4: The segment gross margin was a negative 0.3%.
The segment gross margin was a negative 3%.
Speaker 4: In the second quarter, due to impart to the under recovery of construction overhead costs, in addition, segment growth margin was impacted by a lower than previously forecasted margin on a thermal energy storage repair project due to unforeseen changes in repair scope and associated scheduled delays, which resulted in segment growth profit.
In the second quarter due in part to the under recovery of construction overhead costs. In addition segment gross margin was impacted by a lower than previously forecasted margins on a thermal energy storage repair project due to unforeseen changes in repair scope.
And associated scheduled delays, which resulted in segment gross profit we.
Speaker 4: reduced segment growth profit by 2.8 million. Overall, the biggest issue with the operating results for all three segments was revenue volume, which resulted in under-recovered overhead. The strong project awards, the last two quarters, as well as the current bidding environment, provide management confidence, and improving revenue outlook that will return the company's profitability within the fiscal year.
We do segment gross profit by $2 8 million overall, the biggest issue with our operating results for all three segments was revenue volume.
Which resulted in under recovered overhead the strong project awards, the last two quarters as well as the current bidding environment provide management confidence in improving revenue outlook that will return the company to profitability within the fiscal year.
Moving onto the balance sheet and cash flow at.
Speaker 4: At the start of the quarter, the company had 62 million of cash, including 28 million of cash that was restricted. During the quarter, our total cash increased 31 million to 93 million, including the same amount of restricted cash.
At the start of the quarter, the company had $62 million of cash, including $28 million of cash that was restricted during.
During the quarter, our total cash increased 31 million to $93 million, including the same amount of restricted cash.
Speaker 4: The increase was primarily the result of cast generated from changes in working capital.
The increase was primarily the result of cash generated from changes in working capital.
Speaker 4: Total liquidity increased 35 million in the quarter to 102 million. The quarter-end liquidity consists of 37 million of availability under our AVL credit facility and 65 million of unrestricted cash.
Total liquidity increased $35 million in the quarter to $102 million.
Quarter end liquidity consists of $37 million of availability under our ABL credit facility and $65 million of unrestricted cash.
Speaker 4: The improved liquidity and our debt balance sheet provide the company the financial capacity necessary to support increasing revenue during the remainder of fiscal 2022 and end of fiscal 2023. I will now turn the call back to John .
The improved liquidity and our debt free balance sheet provide the company with financial capacity necessary to support increasing revenue during the remainder of fiscal 2022 and into fiscal 2023, I will now turn the call back to John .
Thank you Kevin as I said earlier the momentum in our business is growing and we're moving closer to that inflection point I spoke about during our last earnings call. This is a result of the recovery and evolution of our end markets and how we approach those markets as well as internal initiatives that have significantly decreased our cost structure and our expected.
Speaker 4: As I said earlier, the momentum in our business is growing and we're moving closer to that inflection point I spoke about during our last earnings call. This is a result of the recovery and evolution of end markets and how we approach those markets as well as internal initiatives that have significantly decreased our cost structure and are expected to create further efficiencies going forward.
To create further efficiencies going forward in prior quarters, we spoke about both delays in capital project spending and how awards were shifting out in time due to the ebbs and flows of the pandemic.
Speaker 4: In prior quarters, we spoke about both delays in capital projects spending and how awards were shifting out in time due to the ebbs and flows of the pandemic.
Speaker 4: With that said, energy markets are stabilizing, demand is rising, and client spending plans have been reestablished. Sentiment is clearly shipped.
With that said energy markets are stabilizing demand is rising and clients' spending plans have been reestablished sentiment has clearly shifted.
Speaker 4: This shift is evident in our business and our already strong opportunity pipeline that has increased by over 11% since the end of the first quarter due to increased activity across our diverse end markets and how we are approaching those markets. The bidding environment is extremely active across all of our segments and we are adding resources to handle the increase in activity.
This shift is evident in our business and our already strong <unk> opportunity pipeline that has increased by over 11% since the end of the first quarter due to increased activity across our diverse end markets and how we are approaching those markets. The bidding environment is extremely active across all of our segments.
And we are adding resources to handle the increase in activity.
Speaker 4: Looking across our opportunity steps, what I'm most excited about is the important role in matrix will play in the transition to clean energy and renewables while maintaining our strong market position in traditional energy markets.
Looking across our opportunity set what I'm. Most excited about is the important role matrix will play in the transition to clean energy and renewables, while maintaining our strong market position and traditional energy markets and our press release yesterday afternoon. We referenced recent notable awards, including the engineering fabrication.
Speaker 4: In our press release yesterday afternoon, we referenced recent notable awards, including the engineering, fabrication and construction of seven renewable fuel storage tanks, upgrade projects at two separate refineries to allow processing of renewable diesel, and a capital project for a mystery gas processing plant. These are the types of capital projects entering our opportunity pipeline in greater numbers as compared to this time last year.
Asian, and construction of seven renewable fuel storage tanks upgrade projects at two separate refineries to allow processing of renewable diesel and a capital project for our midstream gas processing plant. These are the types of capital projects entering our opportunity pipeline in greater numbers as compared to this time last year.
Speaker 4: Many of these projects are captured in our process in industrial facility segment, which has a book to bail of 2.2 through the first six months of our fiscal year and accounts for north of 40% of our backlog.
Many of these projects are captured in our process and industrial facilities segment, which has a book to bill of two two through the first six months of our fiscal year and accounts for north of 40% of our backlog.
Speaker 4: There has been significant uptake in bidding in mystery and gas processing, and we expect to see capital investment and natural gas related infrastructure to continue based on the growth in global demand and recent increases in gas prices. In addition, many of our clients are planning capital expenditures to upgrade their compression and processing stations to minimize the carbon footprints of those facilities and increase capacity. Several of these projects are in our proposal.
There has been significant uptick in bidding and midstream gas processing and we expect to see capital investment in natural gas related infrastructure to continue based on the growth in global demand and recent increases in gas prices. In addition, many of our clients are planning capital expenditures to upgrade their compression and processing stations.
To minimize the carbon footprints of those facilities and increase capacity.
Several of these projects are in our proposal pipeline today.
Speaker 4: Natural gas has an extremely important role of the play in the clean energy transition. Until other solutions are commercially viable and broadly available, natural gas will be needed to bridge the gap.
Natural gas is an extremely important role to play in the clean energy transition until other solutions on commercially viable and broadly available natural gas will be needed to bridge the gap.
Speaker 4: In the same value chain, small-scale energy peak shaving opportunities remain strong. We are pricing multiple feed studies, maintenance and repair and capital projects for both new projects, and several that have been unhold until recently.
And the same value chain small scale LNG peak shaving opportunities remained strong we are pricing multiple feed studies maintenance and repair and capital projects for both new projects and several that had been on hold until recently.
Speaker 4: extreme temperature conditions in some parts of the country and the sharp increase in natural gas prices over the last 12 months has driven further interest in peak shaving facilities by most utilities. These facilities offer our utility customers significant flexibility to meet peak demand for electricity and consumer gas supply while managing their exposure to fluctuations in natural gas spot prices.
Extreme temperature conditions in some parts of the country and a sharp increase in natural gas prices over the last 12 months has driven further interest in peak shaving facilities by most utilities.
These facilities offer our utility customers significant flexibility to meet peak demand for electricity and consumer gas supply, while managing their exposure to fluctuations in natural gas spot prices.
Speaker 4: opportunities across the Americas and the Caribbean and LNG and GLs and LNG bunkering facilities also continue to increase.
Opportunities across the Americas, and the Caribbean LNG Ngls and LNG Bunkering facilities also continue to increase.
Speaker 4: Large capital investment projects aimed at carbon reduction and renewable fuels are also being announced in the refining sector. As these investments are made, we expect our extensive refinery expertise and brand position to result in a growing number of project awards. We are a well-positioned to support the evolving needs of our customers through our broad capabilities in long-standing expertise and performing capital work, turnaround, maintenance and repairs inside their facilities.
Large capital investment projects aimed at carbon reduction and renewable fuels are also being announced in the refining sector. As these investments are made we expect our extensive refinery expertise and brand position to result in a growing number of project awards, we are well positioned to support the evolving needs of our customers through our broad capabilities.
Long standing expertise in performing capital work turnaround maintenance and repairs inside their facilities.
Speaker 4: Much of this work is being done under existing MSAs on a reimbursable basis. It is worth noting that over the past two years, we have grown our MSA-based nested maintenance operations from one to five refineries. They're providing more stability and predictability to our refinery activities. This is an area of our business that we intend to grow further.
This work is being done under existing Msas on a reimbursable basis. It is worth noting that over the past two years, we have grown our MSA based nested maintenance operations from one to five refineries. They are providing therefore, providing more stability and predict predictability to our refinery activities. This is an area of our <unk>.
That we intend to grow further.
Speaker 4: elsewhere in the clean energy value chain, we were continuing to make good progress in hydrogen. Our expertise in cryogenic storage and local faction combined with our relationship with chart industries is providing a strong point of entry in this end market, which has recently resulted in the award of a feed study that has expected to lead to multiple hydrogen processing related projects with this client.
Elsewhere in the clean energy value chain, we are continuing to make good progress in hydrogen our expertise and cryogenic storage and liquefaction combined with our relationship with chart industries and providing a strong point of entry in this end market, which has recently resulted in the award of a feed study that is expected to lead to multiple hydrogen.
Vesting related projects with this client we.
Speaker 4: We are also actively tracking or pursuing further opportunities in hydrogen, as well as ammonia, which facilitates transport and storage of hydrogen, particularly as a munkering fuel. And finally, we recently joined the Hydrogen Council, a global initiative leading companies dedicated to advancing the use of hydrogen as a global energy source.
We are also actively tracking or pursuing further opportunities in hydrogen as well as ammonia, which facilitates transport and storage of hydrogen, particularly as our bunkering fuel.
And finally, we recently joined the hydrogen council are global initiatives, leading companies dedicated to advancing the use of hydrogen as a global energy source.
Speaker 4: Outside of clean energy and renewables, we continue to be active in traditional midstream crude oil infrastructure.
Outside of clean energy and renewables, we continue to be active in traditional midstream crude oil infrastructure as a brand leader in above ground storage. We expect continued work in crude tanks and terminals as well as their maintenance and repair bidding activity. In this market has recently accelerated to pre pandemic levels with near.
Speaker 4: As a brand leader in a background storage, we expect continued work in crude tanks and terminals as well as their maintenance and repair. Bidding activity in this market has recently accelerated to pre-pandemic levels with near-term booking opportunities growing.
Term booking opportunities growing in the mining sector copper precious metals and rare earth mineral prices are sustained and at higher levels, increasing our customers' confidence to move forward with capital spending.
Speaker 4: In a mining sector, copper, precious metals and rare earth metal prices are sustained at higher levels, increasing our customer's confidence to move forward with capital spending.
Speaker 4: We recently won awards for several projects in the US Southwest that are the types of projects that are often precursor for larger project work.
We have recently won awards for several projects in the U S southwest.
Types of projects that are often there precursor for larger project work.
Speaker 4: Our chemical and petrochemical strategies begin to pay off with many chemical companies, both large and small, attracted to our comprehensive and diversified capabilities that include engineering, construction and maintenance. We have been successful in getting master service agreements in place with some clients and are winning small feed and engineering projects, including the award with Commores that was announced last month.
Our chemical and petrochemical strategy is beginning to pay off with many chemical companies, both large and small attracted to our comprehensive and diversified capabilities that include engineering construction and maintenance we have been successful in getting master service agreements in place with some clients and are winning small feed and engineering projects, including the award would come.
<unk> that was announced last month.
Speaker 4: In aerospace, in addition to a first quarter thermal vacuum chamber award, we mentioned in our last earnings call, we will be adding the backlog in the third quarter another vacuum chamber project. We hope to announce bullets of these by press release soon.
In Aerospace in addition to our first quarter thermal vacuum Chamber Award, we mentioned in our last earnings call, we will be adding to backlog in the third quarter. Another vacuum Chamber project, we hope to announce both of these by press release soon.
Speaker 4: bidding opportunities continued to be strong in the send marker for matrix has in each position.
Bidding opportunities continued to be strong in this end market were matrix has a niche position.
Speaker 4: Lastly, the interconnector world of electrical and renewable generation, along with an aging infrastructure system, creates organic potential for our electrical business, currently operating in the Northeast, the High Valley, and Mid-Atlantic.
Lastly, the Interconnector world of electrical and renewable generation, along with an aging infrastructure system grades organic potential for our electrical business currently operating in the northeast, Ohio Valley and mid Atlantic. This team is winning various project types, including Greenfield Substations and rebuilds transmission and distribution.
Speaker 4: This team is winning various project types, including Greenfield substations and rebuilds, transmission distribution, relay upgrades, and fiber installation.
Relay upgrades and fiber installation. One example is the project we announced this morning for talent energy corporations subsidiary Cumulus data at their Susquehanna datacenter, our subsidiary matrix NAC was selected to construct a greenfield substation as well as associated transmission and distribution work. This project Award.
Speaker 4: One example is a project we announced this morning for talent energy corporations, subsidiary, cumulus data, at their Cess Quahana Data Center. Our subsidiary, Matrix NAC, was selected to construct a Greenfield substation, as well as associated transmission and distribution work. This project award was booked subsequent to the second quarter.
Ward was booked subsequent to the second quarter.
Speaker 4: In short, we are highly confident in the market backdrop and continue to take proactive steps to ensure a matrix as the right internal organizational footprint and resources to deliver against it.
In short we are highly confident in our market backdrop and continue to take proactive steps to ensure our matrix is the right internal organizational footprint and resources to deliver against it.
Speaker 4: Since the start of the pandemic, we have streamlined the organization, taken out approximately 80 million in cost, one third of which came out of SG&A. This was the outcome of a business improvement plan we began to execute in 2020.
Since the start of the pandemic, we have streamlined the organization taking out approximately $80 million in cost one third of which came out of SG&A. This was the outcome of a business improvement plan, we began to execute in 2020 as you move on to the next phase of this work will remain full and increasing the efficiency of the organization and are making strategic and.
Speaker 4: As we move on to the next phase of this work, we remain focused on increasing the efficiency of the organization and our making strategic and journal enhancements to that end. Specifically, we were taking steps to consolidate certain areas of the business to further improve our shared services structure for accounting, finance, and human resources.
Tunnel enhancements to that and specifically we are taking steps to consolidate certain areas of the business to further improve our shared services structure for accounting finance and human resources. In addition, we are creating an operational center of excellence that will initially be focused on optimizing safety quality and procurement across the organization.
Speaker 4: In addition, we are creating an operational center of excellence that will initially be focused on optimizing safety, quality and procurement across the organization with the ultimate goal to include other operational support areas.
With the ultimate goal to include other operational support areas.
Speaker 4: We are also continuously evaluating opportunities across various end markets and strategically adding and allocating resources.
We are also continuously evaluating opportunities across various end markets and strategically adding in allocating resources, we recently announced the hiring of several senior people through our business development team and in addition have been tactically building, our operational project and technical teams to support the pursuit and execution of these opportunities and recently awarded <unk>.
Speaker 4: We recently announced a hiring of several senior people to our business development team. And in addition, have been taskically building our operational project and technical teams to support the pursuit and execution of these opportunities and recently awarded projects.
<unk>. These people all have extensive backgrounds in relationships in the markets, where we see greatest growth opportunities for our matrix, specifically energy transition projects now on GE renewables hydrogen midstream gas and chemicals and.
Speaker 4: These people all have extensive backgrounds and relationships in the markets where we see greatest growth opportunities for matrix, specifically energy transition projects, NLNG, renewables, hydrogen, mystery and gas and counter.
Speaker 4: The end result of our actions will be an optimized and efficient organization prepared to support the company's growth plan aligned with a market opportunity and ultimately delivering better and consistent bottom line results. With that, I'm now open to call for questions.
One result of our actions will be an optimized and efficient organization prepared to support the company's growth plan aligned with the market opportunity and ultimately delivering better and consistent bottom line results with that I'll now open the call for questions.
Speaker 1: And thank you. As a reminder, to ask a question, you'll need to press star one on your telephone to withdraw your question, press the pound key. Please stand by, we compile the Q&A roster. And our first question comes from Don, fans read from Siddodean Company. Your line is now open. Good morning, everybody.
And thank you as a reminder to ask a question Youll need to press star one on your telephone to withdraw your question press the pound key please standby we compile the Q&A roster.
And our first question comes from John <unk> from Sidoti <unk> Company. Your line is now open.
Good morning, everybody. Thanks.
Thanks for taking the questions.
I actually I could start with the change in the cost structure from $70 million to $80 million.
Speaker 1: I actually have to start with the change in the cost structure from $70 to $80 million. I guess two questions there. One, does that change your break even point? And two, does it change your gross margin projections or targets in any particular segment?
I guess two questions there one.
Does that change your break even point and two does it change your mom.
Margin.
<unk> or <unk>.
Targets in any particular segment.
Speaker 4: Donas, Kevin, I'll take that. So first of all, I'm going to gross margin targets. No, I don't think it changes those targets. I think that...
John It's Kevin I'll take that so first of all on the gross margin targets no.
Don't think it changes those targets.
I think the change.
Speaker 4: just further makes us more capable of meeting those targets and enhances earnings power. As far as
Just further makes us more capable of meeting those targets and enhances the earnings power.
As far as what's the level of revenue, we need to breakeven level of revenue we need to.
Speaker 4: What's the level of revenue we need at breakeven, the level of revenue we need to achieve full recovery of overheads, those targets of 200 million to breakeven, 220 or so to get full recovery. Those are pretty much the same. And I think the reason I'm not changing those is just, you know, we've seen some, we talked about this last quarter, some of our markets that we bid in right now are pretty competitive. So the,
Achieved full recovery of overheads, those targets of $200 million of breakeven 220 years or so to get full recovery of those are pretty much the same and I think.
The reason I'm not changing those is just we've seen some we've talked about this last quarter some of our.
Markets that we fit in right now are pretty competitive.
Speaker 4: the growth margins down a little bit in some of those. So that kind of offsetting that decrease pause.
The gross margins down a little bit in some of those so.
That's kind of offsetting that decrease cost.
Speaker 5: Okay, and that the $2.8 million that hit the gross margin in the quarter, can you talk a little bit about that project and all those costs behind you and any chance of recovery?
Okay, and the $2 $8 million that hit the gross margin in the quarter.
Can you talk a little bit about the project and all of those close behind you and any chance of recovery.
Speaker 4: So now getting a lot of detail on that project, John . It was a thermal storage project.
So without getting into a lot of detail on that project John .
It was a storage.
Thermal storage project.
Speaker 5: that had issues in scope development post-award. We've been working through those with the client, has increased our cost and increased our schedule on the project.
<unk> had issues and scope development.
Award, we have been working through those with the client.
Has it has increased our costs and increased our schedule on the project.
Speaker 5: And so we should be substantially complete by the end of April .
And so we should be substantially complete by the end of April .
Speaker 5: and believe that we have the class to complete captured at this point.
And believe that we have the cost to complete captured at this point.
Speaker 5: and that anything we're able to do commercially from here on out, I really can't or don't want to comment on.
And that.
Anything anything we're able to do commercially from here on out I really cant or don't want to comment on.
Speaker 5: Okay. And it's kind of hard to believe. Almost anniversary in the one year announcement of the short agreement, but from a share value, it's a much different environment. Can you kind of talk a little bit about how that agreement's progressed over the past year relative to your expectations and what do you see on a go-forward basis?
Okay, and it's kind of hard to believe almost anniversary the one year announcements of the chart.
He made.
But from a share values, it's a much different environment can you kind of talk a little bit about how that agreements progressed over the past year relative to your expectations and where do you see on a go forward basis.
Speaker 4: it was worth pursuing projects both with with chart and without uh... you know
Yes, we are pursuing projects, both with with chart and without.
You know.
Speaker 4: We would certainly like everything to happen quicker, but that's unfortunately that's not the way things work. And so again, we are looking at projects with them and individually without them. We continue to work on some standardized design concepts and packages with them to be able to offer standardized solutions to different clients. As I said here in this script, we've had a recent small feed-up.
We would certainly like everything to happen quicker, but that's unfortunately, that's not the way things work and so again, so we are looking at projects with them and and individually.
Without them.
We continue to work on some standardized design.
<unk> and packages with them to be able to offer.
Standardized solutions to different clients.
As I said here in his script, we had a recent.
Small feed award.
Speaker 4: to a client that is intending on building for hydrogen processing stations.
To a client that is intending on building for hydrogen processing stations.
Speaker 4: in, in, called North America. We feel pretty good about that, that opportunity, the client's ability to, to finance those. And, you know, that, and that project specifically was something that we worked together with Chardonn.
<unk>.
And called North America, we feel pretty good about that that opportunity the clients' ability to to finance those.
Yes.
That project, specifically was something that we work together with chart on two to win the feed and we think we're in a good position to execute on on a full project.
Speaker 4: to win the feed and we think we're in a good position to execute on a full project.
Speaker 4: you know in the near term. So we think sometime in this calendar year, you know we'll be able to flip that feed study into a full project.
In the near term so we think sometime in this calendar year.
We will be able to flip that feed study into into a full project.
Speaker 5: Okay, and one more question. I'll get back into Q. What's the thoughts behind not being more aggressive and share repurchases at this level?
Okay, and one more question and I'll get back into queue whats the thoughts behind not being more aggressive in share repurchases at this level.
Yes, so Jon I'll take that.
Speaker 4: yeah we had a good quarter on cash uh... but the biggest driver is really uh... related to working capital changes and the timing of billing and billings and receipts on on some of our capital projects
Yes.
Had a good quarter on cash.
The biggest driver was really related to working capital changes and the timing of billing and billington receipts on on some of our capital projects.
Speaker 4: You know, when we look out to the future, I think there's primary uses of cash, first of all, will be to fund those projects that are in a bill that had positioned. Secondly, you know, we've talked about that we expect a revenue volume to increase. Some of that will come from reimbursable type projects and will need to be in a position to fund that growth. And then finally,
When we look out to the future I think there is primary uses of cash first of all will be to fund those those projects that are in the build ahead.
<unk> secondly, we've talked about that we expect the revenue volume to increase.
Some of that will come from Reimbursable type projects, and we will need to be in a position to fund that growth.
And then finally.
Speaker 4: We've really decreased our capital spending the last-
We've really decreased our capital spending the last two plus years, and we're going to have to start increasing that a bit and.
Speaker 4: two-plus years and we're gonna have to start increasing that a bit in the future. So that's our focal point right now with our priorities with our cash.
In the future so thats thats, our focal point right now with our priorities with our cash.
Speaker 5: Okay, Karen, thanks. I actually need somebody else to go get back into queue.
Okay, Kevin Thanks, Oxy that somebody is going to get back into queue.
Thank you.
Speaker 1: And our next question comes from Zayn Karemach, from DA Davidson.
And our next question comes from Daniel Jeremy from Da Davidson.
Your line is now open.
Speaker 5: Great, thank you for that. Just to go off the cash flow a little bit into more detail, but how should we think about the cash flow dynamics as well as the working capital? If you have to move forward with this work, because you guys are having new ramping revenues and all of them.
Great. Thank you for that and just to go off.
The cash flow a little bit into more detail, but how should we think about the cash flow dynamics as well as the working capital as you guys move forward with this work as you guys are having new ramping revenues and all of that.
So.
Speaker 4: So it varies and it's going to depend upon where the revenue increased down to from. So if we have increased revenue at period periods like when we have increased maintenance activity.
It varies and it's going to depend upon where the revenue increase stems from so.
If we have.
Increased revenue at periods periods like when we have increased maintenance activity.
Speaker 4: That'll be reimbursable. That works for funding abroad. And, you know, so we're funding that for a couple months.
That'll be reimbursable that works, we're funding upfront and.
So we're finding that for a couple of months and so.
Speaker 4: So that's a usage of times, especially in the fall and the spring quarters as usually the period can see that the month.
That's a usage at times.
<unk>.
The fall and the spring quarters as usual in the periods you can see that the most.
Speaker 4: Then we're going to have capital projects.
No more we're going to have capital projects.
And.
Speaker 4: You know, we try to stay ahead on my cash perspective on those projects.
We try to stay ahead on from a cash perspective on those projects.
Speaker 4: But there are times when you will need to fund that, especially the project gets well ahead on from a cash funding perspective. So as we're thinking about the rest of this fiscal year, I think we'll be able to maintain a pretty strong cash balance somewhere what we've got right now. I think that the...
But there are times, when you will need to fund that especially with the project.
Well ahead on for Mike.
Cash funding perspective so.
As we're thinking about the less the rest of this fiscal year I think we'll be able to maintain a pretty strong cash balance similar to what we've got right now.
I think that the.
Amount of availability under our credit facility will also increase a bit so that will increase liquidity.
Speaker 4: amount of availability in our credit facility also increase a bit. So that will increase liquidity. I think we have 33 million of letters of credit outstanding at the end of the second quarter of that down to just under 24 million today. So that increases availability 10 million just in January . Thank you.
I think we had $33 million of letters of credit outstanding at the end of the.
Second quarter that's down.
Just under $24 million today, so that increases availability 10 million existed in January .
Yes, thank you for all that color.
Speaker 5: I'm going to change tracks a little bit here, but given the global pricing dynamics around gas, you mentioned how there is a significant thickened bidding around infrastructure here. But could you talk a little bit more about the facility upgrades in the infrastructure in particular that you're bidding on? And the industry is willing to spend on a carbon footprint minimization.
No change tracks little bit here, but given the global pricing dynamics around gas you mentioned, how there is a significant uptick in bidding around infrastructure here.
Could you talk a little bit more about the facility upgrades in the infrastructure in particular that you are bidding on and the industry's willingness to spend on our carbon footprint minimization.
Speaker 4: Okay, so there's a couple areas related to LNG. So there are a number of utilities are looking at peak shaving facilities and storage expansions.
Okay. So there's a couple of areas.
Related to <unk>.
LNG. So there are a number of utilities.
We are looking at peak shaving facilities and storage expansion.
Speaker 4: for natural gas to LNG to use to mostly protect their customers against huge spikes in natural gas prices during severe weather conditions.
For natural gas to LNG to use two two mostly protect their their their customers against huge spikes in natural gas prices during severe weather conditions and so I think we're seeing a significant amount of that opportunity.
Speaker 4: And so I think we're seeing, you know, a significant amount of that opportunity. We added a storage tank in first quarter.
<unk>.
We added a storage tank and.
First quarter.
Speaker 4: for related to utilities need to store more gas. There is a number of projects that we're in, either the bidding phase or have put proposals in for related types of infrastructure. And it's really across the US. We're also seeing opportunities for LNG for ship-bunkering for...
For <unk> related to our utilities need to store more gas.
A number of projects that were in the ease of the bidding phase or or have put proposals and.
Four related types of infrastructure and it's really across the across the U S. We're also seeing opportunities for LNG for ship Bunkering.
Sure Rob.
Speaker 4: export small scale export into the Caribbean and then we're seeing opportunities in NGL related projects both in the US and in and into Central America for instance in profane terminals asane terminals
Export small scale export and to the Caribbean.
And then we're seeing opportunities in NGL related.
Projects, both in the U S and into.
Central America for instance, and propane terminals.
Ethane terminals, and so really a lot of activity around gas and gas liquids from our storage and storage Terminalling side and then there's been a marked uptick in just midstream gas processing work.
Speaker 4: And so really a lot of activity around gas and gas liquids from a storage and storage termiling side. And then there's been a marked uptick and just midstream gas processing work.
Speaker 4: You know, when we've got one award, we've announced several projects in the hopper that we are in proposal stage on.
We've got one award we've announced several projects in the Hopper that we are in proposal stage on.
Speaker 4: you know it probably more than we've more projects than we've probably seen in the last three four years in pre-pandemic.
Probably more than we've seen more projects and we've probably seen in the <unk>.
Last three or four years, even pre pandemic.
Speaker 4: And I think one of the drivers there is the
That I think one of the drivers there is the.
Speaker 4: you know, the inability in some cases on mystery clients to be able to put in, you know, new long haul pipelines.
The inability in some cases on midstream clients to be able to put in new long haul pipelines.
Speaker 4: So they had cash flows to upgrade their existing systems to increase service capacity and to upgrade their...
They have cash flows to to upgrade their existing systems to increase service capacity and to upgrade their their individual facilities to drive down its carbon footprint on how it operates along its pipeline so a lot of activity there.
Speaker 4: their individual facilities to drive down its carbon footprint on how it operates along its pipeline. So a lot of activity there, pretty excited about, what we see, in addition to all this, I think we've talked about it quite a bit, but there are changed approach on business development where we are.
Pretty excited about what we see in addition to all of this I think.
We've talked about it quite a bit but.
They are changed approach on business development, where we are.
Speaker 4: you know, fundamentally selling across the entire enterprise, across all of our clients, as opposed to being a little bit more of a silo seller, has really opened up the opportunity pipeline for us across all these energy markets.
Fundamentally selling across the entire enterprise across all of our clients.
As opposed to being a little bit more of a silo seller has really opened up the opportunity pipeline for us across all of these energy markets.
Okay. Thank you for that.
And thank you.
Speaker 1: Our next question comes from Noel Dill. Who's people? Your line is out.
Our next question comes from Noelle Dilts from Stifel.
Your line is now.
Hey, guys good morning.
NOL.
Speaker 6: So I was hoping for us to chat a little bit about how we should think about the sort of lag in terms of backlog translating into revenue. Are there any notable differences across the segments and do you think you could start to see benefit from some of the recent awards by the fourth quarter?
Hi, So I was hoping first you could chat a little bit about how we should think about the <unk>.
Sort of lag in terms of backlog translating into revenue.
Is there are there any notable differences across the segments.
Do you think you could start to see benefits from some of the recent award by the fourth quarter.
Yes, I think it's our expectation is we're going to start to see the the awards in the first half of the year.
Speaker 4: I think it's our expectations. We're going to start to see the awards in the first half of the year.
Speaker 4: to start materially impacting late in the third quarter and find more heavily into the fourth. Yeah, I think it is important to recognize that that timing of a ward to revenue isn't necessarily a shot of adrenaline, you know, it immediately is that happened.
To start materially materially impacting late in the third quarter and probably more heavily into the fourth.
Yes, I think it is important to recognize that that timing of award to revenue isn't necessarily a shot of adrenaline.
And as that happens so.
Speaker 4: So, you know, it does take some time. There may be some permitting issues that got to get finalized. There could be some finalizing of scoping that we were working through with our clients. You know, it could be, you know, the initial engineering work that gets done is a lighter percentage of actual revenue in the project before we can start procuring.
It does take some time there may be some permitting issues they got to get finalized there could be some.
Finalizing a scoping that we will be working through with our clients.
It could be.
Yes.
The initial engineering work that gets done.
The lighter percentage of actual revenue and the project before we can start procuring.
Speaker 4: goods and services and start construction to move into the field. So as we said in our prepared remarks, you know, they can take three upwards of three months from the time a project gets booked to the time it gets into position where it's going to have a material impact on a quarterly revenue. So that's kind of where we see it.
Goods and services and start construction and move into the field. So so as we said in our prepared remarks. It can take three upwards of three months from the time a project gets booked at the time it gets into a position where it's going to have a material impact on our quarterly revenue. So that's kind of where we see it.
Speaker 4: And our opportunity pipeline at award cycle, we think continues to be strong and growing. We expect to see strong awards to continue to happen as we move through the next couple of quarters and throughout the calendar year. And so it's going to be a building of momentum.
And our opportunity pipeline an award cycle, we think continues to be strong and growing and we expect this we expect to see.
Strong awards that continue to happen as we move through the next couple of quarters throughout the calendar year, and so it's going to be building up momentum.
Speaker 4: from a wars to revenue that we see moving out in time here. So it won't be a quick spike. It's going to be a slow bill, but we think we're building up.
From awards took revenue.
That we see moving out in time here, so it won't be a quick spike.
It's going to be a slow build but we think we're building up.
Speaker 4: A very strong foundation of backlog across the business.
A very strong foundation of backlog across the business that is going to support continued revenue growth.
Speaker 4: that is going to support continued revenue growth. And from a segment basis, you know,
On a segment basis.
Speaker 4: The lag is going to happen more likely to be on capital projects. And we've got those throughout all three projects or all three segments. So, it's going to have the same impact on all three of them.
The lag is going to happen more likely on capital projects and we've got those throughout all three projects are all three segments. So.
Can I have the same impact on all three of them.
Speaker 6: Okay, thanks for that color. And then second, sorry if I missed this, but could you just discuss how...
Okay. Thanks for that color and then secondly, sorry, if I missed this but could you just discuss how.
Speaker 6: labor cost inflation and some Romic fuel inflation is impacting the business. Are you able to get those higher costs into into current bids? If you could if you could expand upon that that'd be great. Thank you. You probably good news. The good news bad news on
Labor cost inflation and some raw material inflation is impacting the business are you able to.
Those higher cost into into current beds. If you could if you could expand upon that that'd be great. Thank you.
Let me probably good news the good news bad news on the down markets, we have been working through.
Speaker 4: that the inflation spike to materials kind of happened around us.
That the inflation spike too to materials kind of happened around us.
Speaker 4: And as in the current bidding environment we're in, we're in that, we're feeling the pricing levels on that inflation.
And as in the current bidding environment we're in.
We're in that in footwear, we're feeling.
Pricing levels on that inflation, and we're able to build those for the most part into our beds.
Speaker 4: and we're able to build those for the most part into our bed.
Speaker 4: today and uh you know there are some projects that that were delayed that we had bid pre-pandemic that we're rebitting now and uh to update pricing for clients and we're seeing some pretty mark increases in the pricing or materials you know still play certainly being one of them.
Today.
Yes, there are some projects that were delayed that we had bid pre pandemic that we're re bidding now and to update update pricing for clients and we're seeing some pretty marked increases and the pricing of our materials.
Steel plate, certainly being one of them.
Speaker 4: And but we're for the most part of being able to catch that in our in our bidding proposed program here over the last six months.
And but we're for the most part have been able to catch that in our in our bidding program here over the last six months.
Speaker 4: projects that we already had in backlog, some of those had some material pricing issues that we were able to fortunate to be able to deal with most of those with our clients because of the effects of the pandemic. And as it relates to labor, as we, as
Projects that we already had in backlog.
Some of those some of those had some.
<unk> had some material pricing issues that we were able to fortunate to be able to deal with most of those with our clients because of the effects of the pandemic.
And as it relates to labor as we as our.
Speaker 4: our work volume picked up you know we do a very good job i think of sourcing labor across the country and uh... have got a very good reputation with a light with with uh... labor both on a union and marriage shop basis and you know have not had extreme struggles and attracting labor to our project
Our work volume picks up we do a very good job I think of sourcing labor across the country.
And I have got a very good reputation with light with labor, both on a union and merit shop basis.
And have not had extreme struggles in attracting labor to our project projects I think that will.
Speaker 4: I think that will continue to get more challenging as our work volume stick up and as in general as the markets continue to improve. And that's something that will continue to manage.
We will continue to get more challenging as our work volumes pick up and as in general as the markets continue to improve and that's something that we'll continue to manage.
Great. Thank you.
Speaker 1: And thank you and I'm showing no further questions. I would now like to turn the call back over the John Hewitt for closing remarks.
And thank you and I.
Im showing no further questions I would now like to turn the call back over to John Hewitt for closing remarks.
Speaker 4: Yeah, well, thank everybody for joining us on today's call.
Yes, I want to thank everybody for joining us on today's call.
Speaker 4: And so if you hopefully heard through the call today, the management team is very up to what we see out in the future for the organization. On return of the opportunity cycle, the awards cycle, the conversion of that into revenue, and the strong improvement into our bottom line as we move out in time here over the next couple quarters. So again, thank you everybody for being part of the call. And certainly thank you again out to all of our employees and all of their hard work. They do every day to make a success.
So if you hopefully heard through the call today. The management team is very upbeat on what we see out into the future for the organization.
On return of it will be opportunity cycle. The award cycle, the conversion of that into revenue and the strong improvement into our bottom line as we move out in time here over the next couple of quarters. So so again, thank you everybody for being part of the call and certainly thank you again out to all of our employees and all of their hard work. They do every.
Day to make us successful.
Speaker 1: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
Speaker 2: ...
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Sure.
Sure.
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