Q3 2024 Matrix Service Company Earnings Call

Okay.

Operator: Good morning, and welcome to the Matrix Service Company Conference Call to discuss results for the third quarter of fiscal 2024. Currently, all participants are in a listen-only mode.

Good morning, and welcome to the Matrix Service Company conference call to discuss results for the third quarter of fiscal 2024.

Operator: Later, we will conduct a question-and-answer session. Instructions will be given at that time. As a reminder, this conference call is being recorded. I would now like to turn the conference over to today's host, Ms. Kellie Smythe, Senior Director of Investor Relations for Matrix Service Company.

Operator: Currently all participants are in a listen only mode. Later, we conduct a question and answer session and instructions will be given at that time as a reminder, this conference call is being recorded.

Operator: Now like to turn the conference over to todays host Ms. Kellie Smythe Senior director of Investor Relations for Matrix Service company.

Kellie Smythe: Thank you, Justin. Good morning, and welcome to Matrix Service Company's third quarter fiscal 2024 earnings call. Participants on today's call include John Hewitt, President and Chief Executive Officer, and Kevin Cavanah, Vice President and Chief Financial Officer. The presentation materials referred to during the webcast today can be found under Events and Presentations in 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.

Kellie Smythe: Thank you Justin.

Kellie Smythe: Morning, and welcome to Matrix service company's third quarter fiscal 2024 earnings call.

Kellie Smythe: So on today's call, John Hewitt, President and Chief Executive Officer, and Kevin Cavanah, Vice President and Chief Financial Officer. The presentation materials referred to during the webcast today can be found under events and presentations on the Investor Relations section of the matrix Service company Dot Com as a reminder on stay.

Kellie Smythe: Actual results may differ materially from those indicated by these forward-looking results and forward-looking statements because of various factors, including those discussed in our most recent annual report in Form 10-K and in subsequent filings made by the company with the SEC. To the extent we utilize non-GAAP measures, reconciliations will be provided in various cross-relations, periodic SEC filings, and on our website, related to industry conferences and corporate access opportunities.

Kellie Smythe: This 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 Securities Litigation Reform Act of 1995.

Kellie Smythe: Actual results may differ materially from those indicated by these forward looking results.

Kellie Smythe: 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 at the extent, we utilize non-GAAP measures reconciliations will be filed in various press releases periodic SEC filings and on our web.

Kellie Smythe: Hi.

Kellie Smythe: Related to investor conferences, and corporate access opportunities matrix will be participating in the upcoming Stifel Cross sector insights conference on June 4th and fifth in Boston.

Kellie Smythe: Matrix will be participating in the upcoming CFO Cross-Sector Insights Conference on June 4th and 5th in Boston. If you would like additional information on this event or would like to have a conversation with management, I invite you to contact me through the Matrix Service Company Investor Relations website. Before I turn the call over to John, I would also like to share our safety moment. At Matrix, there is nothing more important than the safety and health of our employees, both physical and mental, and that's why safety is our number one core value.

Kellie Smythe: If you would like additional information on this event or would like to have a conversation with management.

Kellie Smythe: Get you to contact me through the Matrix Service company Investor Relations website.

Kellie Smythe: Before I turn the call over to John I would also like to share our safety moment.

Kellie Smythe: At matrix, there's nothing more important than the safety and health of our employee base.

Kellie Smythe: Physical and mental and that's why safety is our number one core value.

Kellie Smythe: On our last call, John highlighted the work being done across our industry and at Matrix to identify and provide support for addressing mental health issues, especially given the significantly higher level of suicide experienced in the construction industry when compared to others. But mental health issues are something we all grapple with at one time or another in our lives. As the month of May is Mental Health Awareness Month, we thought it would be a good time for a reminder that each of us should periodically take time to assess our own mental health, just as we do our physical health.

Kellie Smythe: On our last call Jon highlighted the work being done across our industry and at matrix to identify and provide support for addressing mental health issues, especially given the significantly higher level of suicide experienced in the construction industry when compared to others.

Kellie Smythe: But mental health issues are something we all grapple with at one time or another in our lives.

Kellie Smythe: As the month of May is mental health awareness month, we thought it would be a good time for a reminder, that each of us should periodically take time to assess our own mental health just as we do our physical health.

Kellie Smythe: In doing so, it's important to identify the root causes of any issues we may be experiencing. And, above all, remember, it's okay to ask for help. At Matrix, our people are our greatest asset. By ensuring the mental and physical well-being of our people, we are better equipped to do the important work our customers and shareholders count on us to deliver. I will now turn the call over to John.

Kellie Smythe: In doing so it's important to identify the root causes of any issues, we may be experiencing and above all remember it's okay to ask for help.

Kellie Smythe: At matrix, our people are our greatest asset by ensuring the mental and physical wellbeing of our people. We are better equipped to do the important work our customers and shareholders count on us to deliver I will now turn the call over to John.

John R. Hewitt: Thank you, Kellie, and good morning, everyone. We delivered mixed third-quarter results. Execution performance was good. We maintained our record backlog. The opportunity pipeline continues to be strong, and liquidity expanded. However, revenue was the low point for the year, driven by the convergence of three key issues.

John: Thank you Kelly and good morning, everyone.

John: We delivered mixed third quarter results execution performance was good we maintained our record backlog the opportunity pipeline continues to be strong and liquidity expanded however revenue was the low point for the year driven by the convergence of three key issues first.

John R. Hewitt: First, the conversion of backlog to revenue on some of our major projects continues to push to the right. This shift does not represent an uncertainty in the project's progress, but it does highlight the complexity of finalizing large capital construction project contracts and the impact our clients have on the timing of those project starts. We expect these projects to finally begin contributing additional revenue in Q4 and grow in a more meaningful way throughout fiscal year 25 and beyond.

John: The conversion of backlog to revenue some of our major projects continue to push to the right. This shift does not represent an uncertainty in other projects proceed.

John R. Hewitt: Does highlight the complexity of finalizing large capital construction project contracts.

John R. Hewitt: And the impact our clients have on the timing of those projects starts.

John R. Hewitt: We expect these projects to finally begin contributing additional revenue in Q4 and grow in a more meaningful ways throughout fiscal year 'twenty five and beyond second a long term multi decade refinery clients change their spending priorities and contracted labor demand in the third quarter.

John R. Hewitt: Second, a long-term, multi-decade refinery client changed its spending priorities and contracted labor demand in the third quarter and for the balance of the current contract. And finally, there were two areas of softness in our core markets, crew tank new build and maintenance and repair in the lower 48, as well as electrical infrastructure in our predominantly northeast sector. In both cases, we believe this softness is transitory and will begin to firm up moving into Fiscal 25.

John R. Hewitt: And for the balance of the current contract and finally, there were two areas of softness are core markets for Chegg, newbuild and maintenance and repair in the lower 48, as well as electrical infrastructure and are predominantly northeast sector.

John R. Hewitt: In both cases, we believe this softness is transitory and will begin to firm up moving into fiscal 'twenty five given the market dynamics, we are seeing and how we approach those markets.

John R. Hewitt: Given the market dynamics we are seeing and how we approach those markets, In short, we expect revenue to improve from here and continue to build through fiscal 2025. As this increased volume of projects and backlog and new awards convert to revenue, we expect to drive improved fixed cost absorption and margin expansion toward our historical double-digit levels. Backlog in the third quarter increased nearly 75 percent on a year-over-year basis, and we held our all-time high of $1.45 billion, driven by a diverse mix of high-value multi-year projects that will support improved profitability moving into fiscal 2025.

John R. Hewitt: In short, we expect revenue to improve from here and continue to build through fiscal 2025.

John R. Hewitt: This increased volume of projects in backlog and New awards convert to revenue, we expect to drive improved fixed cost absorption and margin expansion toward our historical double digit levels backlog in the third quarter increased nearly 75% on a year over year basis, and we held our all time high of $1 45.

John R. Hewitt: Billion, driven by a diverse mix of high value multi year projects that will support improved profitability moving into fiscal 2025.

John R. Hewitt: Our backlog, bookings, and bidding activity remain very strong as we enter the fourth quarter, which has already produced additional specialty vessel storage for us. This is also our 11th consecutive quarter with a book-to-bill greater than or equal to 1, led by robust demand within our storage and terminal solutions segment, where book-to-bill was 2.5 in the third quarter compared to 1.3 a year ago. We continue to maintain strong bidding discipline, consistent with our strategic focus on profitable organic growth.

John R. Hewitt: Our backlog bookings and bidding activity remains very strong as we enter the fourth quarter, which is already produced additional specialty vessel storage bookings.

John R. Hewitt: This is also our 11th consecutive quarter with a book to bill greater than or equal to one led by robust demand within our storage and terminal solutions segment, where book to Bill was two five in the third quarter compared to $1 three a year ago, we continue to maintain strong bidding discipline consistent with our strategic for.

John R. Hewitt: Because some profitable organic growth our.

John R. Hewitt: Our opportunity pipeline clearly supports the long-term trend to maintain a strong backlog. While the financial impact of the timing of project starts is a reality for our industry, it is important to keep in mind that the work will get built and that the underlying demand thesis remains unchanged. Matrix is in the right markets at the right time with the right expertise and strategy to drive value creation for our shareholders. I will ask Kevin to provide more detail around the third quarter results, and then I'll provide more color on our outlook for the business entering fiscal 2025 and why we remain confident that our business is moving toward a positive inflection and profitability over the coming quarters. Kevin

John R. Hewitt: Our opportunity pipeline clearly supports the long term trend to maintain a strong backlog.

Kevin: While the financial impact of the timing of project starts are a reality for our industry. It is important to keep in mind that the work will get built and that the underlying demand thesis remains unchanged.

Kevin: Matrix is in a right markets at the right time with the right expertise and strategy to drive value creation for our shareholders.

John R. Hewitt: I'll ask Kevin to provide more detail around the third quarter results and then I'll provide more color on our outlook for the business entering fiscal 2025, and why we remain confident that our business is moving toward a positive inflection in profitability over the coming quarters Kevin.

Kevin S. Cavanah: Thank you. As John indicated, the results for the third quarter will be back. Project awards and backlog were in line with our expectations. We generated awards of $187 million in the quarter, and they booked a bill of $1.1. The most significant award was another large specialty tank project.

Kevin: Thank you as John indicated the results for third quarter were mixed project awards and backlog were in line with our expectations. We generated awards of $187 million in the quarter and a book to Bill of one one.

Kevin S. Cavanah: Most significant award was another large, especially tank project. This increased backlog in the storage and terminal solutions segment to $738 million, a new record high and an increase of 150% versus the prior year period.

Kevin S. Cavanah: This increased backlog in the storage and terminal solutions segment to $738 million, a new record high, and an increase of 150% versus the prior year period. This also allowed us to maintain our consolidated backlog at a record high of 1.45 billion. While our backlog continues to strengthen, it has taken longer than previously anticipated for our consolidated operating results to improve. Total revenue was down to $166 million, an 11% decrease compared to the prior year period.

Kevin S. Cavanah: This also allowed us to maintain our consolidated backlog at a record high at 145 billion.

Kevin S. Cavanah: While our backlog continues to strengthen it has taken longer than previously anticipated for consolidated operating results to improve total revenue was down.

Kevin S. Cavanah: Two $166 million.

Kevin S. Cavanah: 11% decrease compared to the prior year period, we anticipate revenue improvement as we move from the third quarter into the fourth quarter.

Kevin S. Cavanah: We anticipate revenue improvement as we move from the third quarter into the fourth quarter. We have previously discussed that the growth in our backlog has been fueled by long-term construction projects, which have an inherent lag between the time a project is awarded and when it begins to have a material impact on revenue. While these contracts make up a significant portion of the backlog, the contribution to revenue has been minimal in fiscal 2024. We expect the storage and terminal solutions and utility and power infrastructure segments to drive growth as we move forward.

Kevin S. Cavanah: We have previously discussed that the growth in our backlog has been fueled by long term construction projects, which have an inherent lag between the time a project is awarded and when it begins to have a material impact on revenue.

Kevin S. Cavanah: While these contracts make up a significant portion of the backlog the contribution to revenue has been minimal in fiscal 2024 weeks.

Kevin S. Cavanah: We expect our storage and terminal solutions and utility and power infrastructure segments to drive growth as we move through.

Kevin S. Cavanah: Our gross margin in the third quarter was 3.4%, 100 basis points higher over the same period a year ago. Our third quarter performance would have been almost 600 basis points higher on the gross margin rate, but for two factors. First, low revenue resulted in under-recovered construction overhead, which negatively impacted gross margins by almost 400 basis points. Second, we were impacted by reduced labor demand and turnaround services in the final year of a three-year refinery maintenance contract, which is currently up for renewal.

Kevin S. Cavanah: Our gross margin in the third quarter was three 4% up 100 basis points over the same period, a year ago, our third quarter performance would have been almost 600 basis points higher on gross margin rate, but from two factors first low revenue resulted in under recovery of construction overhead which now.

Kevin S. Cavanah: <unk> impacted gross margins by almost 400 basis points.

Kevin S. Cavanah: Second we were impacted by reduced labor demand and turnaround services in the final year of a three year refinery maintenance contract, which is currently up for renewal the.

Kevin S. Cavanah: The accounting for this change was applied retroactively over the life of the contract and therefore impacted our consolidated margin by 200 basis points in the quarter. Moving down the income statement, SG&A was $19.9 million in the quarter. We continue to benefit from organizational efficiencies achieved over the last several years.

Kevin S. Cavanah: The accounting for this change was applied retroactively over the life of the contract and therefore impacted our consolidated margin by 200 basis points in the quarter.

Kevin S. Cavanah: Moving down the income statement SG&A was $19 9 million in the quarter.

Kevin S. Cavanah: We continue to benefit from organizational efficiencies achieved over the last several years.

Kevin S. Cavanah: Our stock compensation expense increased $2.5 million in the quarter due to a 33% increase in the share price. This expense increase is related to cash settled stock awards issued in previous periods. Expense associated with these awards is variable and fluctuates with changes in our stock price. For the third quarter of fiscal 2024, we had a net loss of $14.6 million, or $0.53 per fully diluted share. As previously discussed, the primary driver of the loss was the low revenue, which was a $0.42 increase.

Kevin S. Cavanah: Compensation expense increased $2 5 million in the quarter due to a 33% increase in the share stock price.

Kevin S. Cavanah: This expense increase is related to cash settled stock awards issued in previous periods expense associated with these awards is variable and fluctuates with changes in our stock price.

Kevin S. Cavanah: For the third quarter of fiscal 'twenty, four we had a net loss of $14 6 million or <unk> 53 per fully diluted share as previously discussed.

Kevin S. Cavanah: Discuss the primary driver to the walls was the low revenue, which is poised to increase.

Kevin S. Cavanah: Moving to the operating segments, in the storage and terminal solutions segment, revenue was $54 million in the third quarter as compared to $52 million in the prior year period. We expect higher revenue as we move forward and into fiscal 2025 as large specialty storage project awards transition through contracting, engineering, project planning, and into field construction. Gross margin was 4.3% in the third quarter, an increase of 590 basis points over the prior year. This increase related to strong project execution throughout this segment, including specialty storage projects, allowing a return to double-digit direct gross margins.

Kevin S. Cavanah: Moving to the operating segments and the storage and terminal solutions segment revenue was $54 million in third quarter as compared to $52 million in the prior year period.

Kevin S. Cavanah: We expect higher revenue as we move forward into fiscal 2025 as large specialty storage project awards transition through contracting engineering project planning and into field construction.

Kevin S. Cavanah: Gross margin was four 3% in the third quarter, an increase of 590 basis points over.

Kevin S. Cavanah: The prior year this increase related to strong project execution throughout this segment, including specialty storage projects, allowing a return to double digit direct gross margins.

Kevin S. Cavanah: However, both periods were impacted by under-recovered fixed costs due to low revenue; in the current quarter, this negatively impacted gross margins by almost 700 basis points. However, revenue is expected to increase in this segment beginning in the fourth quarter, significantly reducing the impact from under-recovered overhead. In the utility and power infrastructure segment, revenue was $46 million in the third quarter, compared to $35 million a year ago. Segment revenue is beginning to benefit from the start of previously awarded LNG peak shaver projects, which we expect to increase as we move forward. The power delivery portion of this segment is currently experiencing a softer market in the northeastern geographic area we serve.

Kevin S. Cavanah: However, both periods were impacted by under recovery fixed costs due to lower revenue.

Kevin S. Cavanah: In the current quarter this negatively impacted gross margins by almost 700 basis points.

Kevin S. Cavanah: Revenue is expected to increase in this segment beginning in the fourth quarter significantly reducing the impact from under recovered overheads.

Kevin S. Cavanah: And the utility and power infrastructure segment revenue of $46 million in third quarter compared to $35 million a year ago.

Kevin S. Cavanah: <unk> revenue is beginning to benefit from the start of previously awarded LNG peak shaving projects, which we expect to increase as we move forward.

Kevin S. Cavanah: Our delivery portion of this segment is currently experiencing a softer market and the northeastern geographic areas we serve.

Kevin S. Cavanah: Gross margin was 3.1% in the third quarter compared to 8% in the prior year quarter. The peak share portion of the segment is producing strong gross margins. But that is offset by softness in the power delivery business, as well as under-recovery of production overhead costs. This under-recovery impacted gross margins by 550 basis points and is temporary as the backlog is expected to drive higher revenue in this segment beginning of the fourth quarter.

Kevin S. Cavanah: Gross margin was three 1% in the third quarter compared to 8% in the prior year quarter.

Kevin S. Cavanah: The peak share portion of the segment is producing strong gross margins.

Kevin S. Cavanah: But that is offset by softness in the power delivery business as well as under recovery of construction overhead costs.

Kevin S. Cavanah: This under recovery impacted gross margins by 550 basis points and is temporary as the backlog is expected to drive higher revenue in this segment beginning in the fourth quarter.

Kevin S. Cavanah: In the Process and Industrial Facilities segment, third-quarter revenue was $66 million compared to $100 million in the third quarter of fiscal 2023. The revenue decline is due to a couple of factors, completion of a gas processing project in the prior year and lower refinery maintenance revenue as a long-term refinery maintenance customer has reduced labor demand and turnaround services. The company is also scheduled to complete a renewable fuels project in the fourth quarter, which has been a good contributor to segment results through the fiscal year.

Kevin S. Cavanah: And the process and industrial facilities segment third quarter revenue was $66 million compared to $100 million.

Kevin S. Cavanah: Third quarter of fiscal 2023.

Kevin S. Cavanah: Revenue declines due to a couple of factors completion of our gas processing project in the prior year and lower refinery maintenance revenue as a long term refinery maintenance customer has reduced labor demand and turnaround services.

Kevin S. Cavanah: Anthony is also scheduled to complete in renewable fuels project in the fourth quarter, which has been a good contributor to the segment results through the fiscal year.

Kevin S. Cavanah: Expect revenue to decrease on both a year-over-year and sequential basis as certain existing projects near completion, and we await the start of new projects both in backlog and in our opportunity pipeline. Segment gross margin was 2.7% in the third quarter compared to 3.2% in the prior year quarter. The current year quarter was impacted by a change related to the refinery maintenance contract, and the prior year quarter was impacted by the completion of a challenging gas processing project.

Kevin S. Cavanah: We expect revenue to decrease on both a year over year on sequential basis as certain existing projects near completion and we await the start of new projects, both in backlog and in our opportunity pipeline.

Kevin S. Cavanah: Segment gross margin was two 7% in the third quarter compared to three 2% in the prior year quarter.

Kevin S. Cavanah: The current year quarter was impacted by a change related to refinery maintenance contract in the prior year quarter was impacted by the completion of a challenging gas processing project.

Kevin S. Cavanah: Now let's discuss the balance sheet and liquidity. We continue to have a strong balance sheet with cash and credit facility availability of $135 million. During the quarter, we generated $25 million in cash flow from operations. We also utilized $4.8 million for capital expenditures, the majority of which was used for the purchase of a fabrication facility.

Speaker Change: Now lets discuss the balance sheet and liquidity.

Kevin S. Cavanah: We continue to have a strong balance sheet with cash and credit facility availability of $135 million.

Kevin S. Cavanah: During the quarter, we generated $25 million in cash flow from operations.

Kevin S. Cavanah: We also utilized $4 8 million for capital expenditures, the majority of which was used for the purchase of a fabrication facility.

Kevin S. Cavanah: As of March 31st, 2024, we are in a net cash positive position with no outstanding debt, and will continue to practically manage the balance sheet to support the improvement business. Before I turn the call back to John, I think it's important to note that overall project execution is strong, and the earnings and expectation we have been talking about remain intact. It is just taking the revenue ramp longer to materialize. That ramp is supported by a backlog consisting of several multi-year quality projects, strong markets, and a robust opportunity, and I'll turn the call back to John. Thank you, Kevin.

Kevin S. Cavanah: As of March 31, 2004, we are in a net cash positive position with no outstanding debt.

John: We'll continue to proactively manage the balance sheet to support the improving business.

Kevin: Before I turn the call back to John I think it is important to note.

Kevin S. Cavanah: That overall project execution was strong in the earnings expectation, we have been talking about remains intact and is just taking the revenue ramp longer to materialize that ramp is supported by backlog consisting of several multiyear quality projects.

Kevin S. Cavanah: Strong markets and a robust opportunities.

Kevin S. Cavanah: I'll now turn the call back to John.

John R. Hewitt: In the fourth quarter of fiscal 2025, we expect to see improvement in top and bottom line results as projects currently in backlog begin to benefit revenue. Together with our work to streamline the company, Matrix is well positioned for material improvement in revenue and profitability. And, as I said in my opening remarks, we are in the right markets with the right expertise and strategy to drive value creation for our shareholders. Matrix is benefiting from and will continue to benefit from several megatrends that create demand for infrastructure in the end markets we serve, all of which present a long runway and multibillion-dollar project opportunity pipeline.

John: Thanks, Kevin.

John: In the fourth quarter and fiscal 2025, we expect to see improvement in top and bottom line results as projects currently in backlog will begin to benefit revenue together with our work to streamline the company matrix is well positioned for material improvement in revenue and profitability and as I said in my opening remarks, we are in a right markets with the right expertise and strategy to drive value.

John R. Hewitt: Great for our shareholders.

John R. Hewitt: Matrix is benefiting and will continue to benefit from several mega trends that create demand for infrastructure and the end markets. We serve all of which present, a long runway and multibillion dollar project opportunity pipeline.

John R. Hewitt: The clean energy transition and demand for lower carbon solutions require infrastructure supporting LNG, ammonia, hydrogen, and other renewable fuels. This is an area where Matrix is recognized as a leading engineering and construction company, and one of the very few with the cryogenic expertise needed to complete this complex infrastructure.

John R. Hewitt: Clean energy transformation of demand for lower carbon solutions required infrastructure supporting LNG ammonia IGN and other renewable fuels. This is an area where matrix is recognized as a leading engineering and construction company and one of the very few with the cryogenic expertise needed to complete this complex infrastructure.

John R. Hewitt: The need for system reliability and resilience is also driving demand in the utility and electrical infrastructure space for the use of LNG in both peak demand and backup fuel as well as transmission and distribution substation and other system upgrades. Our electrical infrastructure expertise provides significant opportunity for organic growth and high-voltage transmission, distribution, and substation project work, as well as industrial electrical projects. The expansion of this business is a key organic growth initiative for our organization and is already gaining traction with expanded clients, bidding opportunities, and geographies.

John R. Hewitt: The need for system reliability and resilience is also driving demand in the utility and electrical infrastructure space for the use of LNG in both in both peak demand backup fuel as well as transmission and distribution substation and other system upgrades.

John R. Hewitt: Our electrical infrastructure expertise provides significant opportunity for organic growth and high voltage transmission distribution and substation project work as well as industrial electrical projects. The expansion of this business is a key organic growth initiative for our organization and is already gaining traction with expanded clients bidding opportunities and geography.

John R. Hewitt: An important near-term demand driver for such projects is data center growth, which is creating substantial incremental electricity load increases. Nearly half of all planned U.S. data center investment is concentrated in unregulated markets such as California, Texas, Virginia, New York, Florida, and Illinois. Current industry expectations are for further geographic dispersion of data center investment over time as the data center permitting process becomes more forgiving across regulated markets.

John R. Hewitt: Fees, an important near term demand driver for such projects as data center growth, which is creating substantial incremental electrical electricity load increases nearly half of all planned U S. Data center investment is concentrated in unregulated markets, such as California, Texas, Virginia, and New York, Florida and Illinois.

John R. Hewitt: Current industry expectations are for further geographic dispersion of datacenter investment over time as data center permitting process become more forgiving across regulated markets given our current electrical infrastructure footprint, which is concentrated in the upper mid Atlantic and northeast, we are well positioned to benefit from incremental data set of load growth.

John R. Hewitt: Given our current electrical infrastructure footprint, which is concentrated in the upper mid-Atlantic and northeast, we are well positioned to benefit from incremental data set and load growth and the resulting infrastructure investment needs in this geography, specifically related to substations transmission and distribution. We're also currently engaged in developing a relationship with data center clients for electrical opportunities in the space that allow us to expand into new geographies. Global geopolitical instability, the need for energy supply assurance, and low-cost feedstock to support manufacturing and other end markets are all creating ongoing demand for hydrocarbon-related infrastructure associated with oil, gas, and natural gas liquids such as ethane, ethylene, butane, and propane.

John R. Hewitt: And the result of infrastructure investment needs in this geography, specifically related to substations transmission and distribution.

John R. Hewitt: So currently cultivated and develop relationship with data center clients or electrical opportunities in this space will allow us to expand to new geographies.

John R. Hewitt: Global geopolitical instability, the need for energy supply assurance and low cost feedstock to support manufacturing and other end markets are all creating ongoing demand for hydrocarbon related infrastructure associated with oil gas and natural gas liquids, such as ethane ethylene butane and propane.

John R. Hewitt: As mentioned earlier, all these megatrends have long runways and are expected to drive infrastructure investments for the foreseeable future. Our leading position as a solution provider supporting these infrastructure investments provides us with greater visibility, and it positions us for consistent, profitable growth moving forward. Breaking it down further, let me add more color and highlight near-term opportunities in just a few of our end marks.

John R. Hewitt: As mentioned earlier all of these mega trends have long runways and are expected to drive infrastructure investments for the foreseeable future, our leading position as a solutions provider supporting these infrastructure investments provides us greater visibility and it positions us for consistent profitable growth moving forward breaking it down further let me add more color and <unk>.

John R. Hewitt: Highlight near term opportunities in just a few of our end markets. We have the unique ability to bring together the cryogenic storage and balance of plant infrastructure under one brand name, which is valued by our clients. Currently a significant part of our backlog is comprised of projects that support growing demand for LNG and Ngls and a utility.

John R. Hewitt: We have the unique ability to bring together the cryogenic storage and balance of plant infrastructure under one brand name, which is valued by our clients. Currently, a significant part of our backlog is comprised of projects that support growing demand for LMG and NGLs. In the utility and power industry, small to mid-sized peak shavers are an increasing critical component for ensuring system reliability and resilience.

John R. Hewitt: And power industry small to midsized peak shavers or an increasing critical component for our insurance system reliability and resilience.

John R. Hewitt: They allow gas utilities to meet increasing demand resulting from both community and industrial growth, as well as peak demands during severe weather events. They provide a means of supplying remote locations with energy and addressing areas restricted by a lack of natural gas pipelines or bottlenecks in existing pipeline infrastructure. And, finally, they allow utilities to buy gas at lower spot prices during periods of decreased demand and store it for future use.

John R. Hewitt: Our gas utilities to meet increasing demand, resulting from both community and industrial growth as well as peak demands during severe weather events.

John R. Hewitt: They provide a means for supply in remote locations with energy and addressing areas restricted by a lack of natural gas pipelines of bottlenecks and existing pipeline infrastructure and finally, they allow utilities to buy gas, but lower spot prices during periods of decreased demand and stored for future use.

John R. Hewitt: LNG bunkering facilities and other supply chain infrastructure are integral to the lower carbon and clean energy transition, specifically in the maritime industry. The International Maritime Organization's 2023 strategy on the reduction of greenhouse gas emissions from ships means that more and more commercial vessels, such as container and cruise ships, are being converted or built to run on LNG, creating increased demand for bunkering facilities. This lower carbon fuel is also being used in heavy transportation, such as rail and truck. Small to mid-scale energy facilities have also been an attractive investment for companies entering the energy market as third-party suppliers to both utility and maritime organizations and to individual companies in aerospace, rail, and trucking for their own use.

John R. Hewitt: LNG bunkering facilities and other supply chain infrastructure are integral to the lower carbon and clean energy transition specifically in the maritime industry of the international Maritime organization of 2023 strategy on a reduction in greenhouse gas emissions from ships means that more and more commercial vessels such as container on cruise ships are being converted or built.

John R. Hewitt: Rob on LNG, creating increased demand for bunkering facilities. This lower carbon fuel is also being used in heavy transportation such as rail trucking small to mid scale LNG facilities have also been an attractive investment for companies entering the energy market as third party suppliers to both utility and maritime organizations and to <unk>.

John R. Hewitt: Individual companies and aerospace rail and trucking for their own use.

John R. Hewitt: In addition to significant projects already in backlog, our teams are actively monitoring more than 13 near-term LNG projects. These opportunities include small to mid-scale facilities, as well as infrastructure upgrades and replacements, and NGLs. Our teams are currently at work on multiple infrastructure projects that support ethane, ethylene, and other NGLs, and we expect to book several additional awards for NGL projects in the next couple of quarters. Beyond these near-term awards, we continue to see significant infrastructure opportunities supporting both domestic and international demand for NGLs as the U.S. has become the global low-cost stable producer of these hydrocarbon byproducts.

John R. Hewitt: In addition to significant projects already in backlog. Our teams are actively monitoring more than 13 near term LNG projects. These opportunities include small to mid scale facilities as well as infrastructure upgrades and replacements.

John R. Hewitt: And Ngls. Our teams are currently a work on multiple infrastructure projects that support ethane ethylene and other Ngls and we expect to book a several additional awards for NGL projects in the next couple of quarters beyond These near term awards, we continue to see significant infrastructure opportunities supporting both domestic and international demand for Ngls.

John R. Hewitt: The U S.

John R. Hewitt: Has become a global low cost.

John R. Hewitt: Stable producer of these hydrocarbons byproducts.

John R. Hewitt: Currently, our teams are actively monitoring 17 near-term NGL projects. We've also seen an increase in project opportunities supporting the storage, processing, production, loading, and distribution of hydrogen, and hydrogen derivatives such as ammonia from natural gas and other feedstocks. Overall, our opportunity pipeline remains strong at $6.1 billion, a key indicator of the strength across all of our end markets and our ability to continue a long-term trend of backlog stability and growth, cough, While projects move in and out of our pipeline based on the decisions made by owner-operators, as well as other factors out of our control, in general, the projects we are currently monitoring are expected to be bid and awarded within the next 18 months, and on average represent projects that will require an 18- to 30-month time frame to deliver.

John R. Hewitt: Currently our teams are actively monitoring 17 near term NGL projects.

John R. Hewitt: Excuse me.

John R. Hewitt: We've also seen an increase in project opportunities supporting the storage processing production loading at distribution of hydrogen.

John R. Hewitt: And hydrogen derivatives, such as ammonia from natural gas and other feedstocks.

John R. Hewitt: [laughter].

John R. Hewitt: Overall, our opportunity pipeline remains strong at $6 1 billion, a key indicator of the strength across all of our end markets and our ability to continue a long term trend of backlog stability and growth.

John R. Hewitt: Yeah.

John R. Hewitt: While projects move in and out of our pipeline based on the decisions made by owner operators as well as other factors out of our control in general the projects. We are currently monitoring are expected to be bid and awarded within the next 18 months and on average represent projects that will require at 18 to 30 month timeline to deliver.

John R. Hewitt: Over half of the projects in our Opportunity Pipeline support specialty vessels, storage, and terminal services. In summary, as the current infrastructure investment cycle continues to gather momentum, we remain highly optimistic and believe we are uniquely positioned to drive continued growth while creating long-term value for our shareholders. I now open the floor to questions.

John R. Hewitt: Over half of the projects in our opportunity pipeline support specialty vessel storage and terminal services. In summary is the current infrastructure investment cycle continues to gather momentum.

John R. Hewitt: We remain highly optimistic and believe we are uniquely positioned to drive continued growth, while creating long term value for our shareholders now all for questions.

Operator: And thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

Operator: And thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced.

Speaker Change: Your question. Please press star one again, please standby, while we compile the Q&A roster one moment for your first question.

Operator: Please stand by while we compile the Q&A roster. One moment for our first question. And our first question comes from Brent Thielman from D.A. Davidson. Your line is now open.

Operator: And our first question comes from Brent Thielman from D. A Davidson your line is now open.

Brent Edward Thielman: Hey, thanks. Good morning, John, Kevin, Kellie.

Brent Edward Thielman: Hey, Thanks, Good morning, John Kevin Kelly.

Brent Edward Thielman: Brian I guess first.

Brent Edward Thielman: First question is just on the.

Brent Edward Thielman: I guess the outlook for process and industrial facilities.

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

Brent Edward Thielman: How long do you think some of this softness in.

Brent Edward Thielman: Business results persists before we start to see a return to growth and what might drive that John.

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

Brent Edward Thielman: So it's a process industrial facilities.

John R. Hewitt: First of all we've got some good backlog already.

John R. Hewitt: There is if there is a significant project that was awarded I think it was in fiscal 'twenty three that will that will start here mid fiscal 'twenty five that will drive it and then.

John R. Hewitt: When you look at the funnel of project opportunities.

John R. Hewitt: There are are really good opportunities across the board now.

John R. Hewitt: So how quickly do those get awarded.

John R. Hewitt: So I think we're looking at.

John R. Hewitt: Uh huh.

John R. Hewitt: A short term.

John R. Hewitt: Period, where that segment is not growing but then longer term I think the prospects are strong.

John R. Hewitt: Okay.

Brent Edward Thielman: Okay. And I guess just taking this all in, we think about the shorter term. Did some of the moving pieces in that business group now impact your review, your view of a return to profitability in the fourth quarter, or maybe a return to positive EBIT, just given this, what seems to be, you know, the opposite of some of the business groups that seem to be rampant?

John R. Hewitt: Okay.

John R. Hewitt: And I guess just taking this all in if we think about the shorter term.

Brent Edward Thielman: Some of the moving pieces in that business group now impact sort of your view of the return to profitability in the fourth quarter or maybe a return to positive EBIT, just given what seems to be yes.

Brent Edward Thielman: The opposite and some of the business groups that seem to be ramping up.

John R. Hewitt: Yeah, so, you know, obviously, the move out of revenues from one period to the next has changed our outlook for the fourth quarter. But it has not changed the outlook for the long term.

Brent Edward Thielman: Yes, so obviously the move out of of revenues from one period to the next as has.

John R. Hewitt: Change to our outlook for the fourth quarter.

John R. Hewitt: So when we think about the fourth quarter, we're expecting strong revenue growth for the storage and thermal solutions segment and the utility and power infrastructure segment. As I said earlier, the process industrial facilities will be down, but that'll be outweighed by the growth in the others. So I think when you're thinking about the fourth quarter, it'll be strong sequential growth over the third quarter. And we'll get back to, you know, the level we were at in the fourth quarter of last year.

John R. Hewitt: It has not changed the outlook on the long term.

John R. Hewitt: So when we think about the fourth quarter, we're expecting.

John R. Hewitt: Strong revenue growth for the storage and terminal solutions segment, and the utility and the power infrastructure segment.

John R. Hewitt: As said earlier the process industrial facilities will be down, but that'll be outweighed by the growth in the other so I think when you're thinking about the fourth quarter.

John R. Hewitt: The strong sequential growth over the third quarter.

John R. Hewitt: And it will get back to.

John R. Hewitt: The level, we were at in the fourth quarter of last year.

John R. Hewitt: So will we get to profitability in the fourth quarter? I don't know that we'll get there all the way, but I think we'll make a significant move toward that. You know, then as we move into fiscal 25, those revenues will continue to ramp up in those two segments. And again, profitability.

John R. Hewitt: So when we get to profitability in the fourth quarter.

John R. Hewitt: I don't know that we'll get there all the way I think will make a significant move toward that.

John R. Hewitt: And.

John R. Hewitt: Then as we move into fiscal 'twenty five.

John R. Hewitt: Those those revenues will continue to ramp in those two segments.

John R. Hewitt: And again profitability as well.

Brent Edward Thielman: You know, we're still looking at 25. Will it be in the first quarter, second quarter? I think we can get there in the first half.

John R. Hewitt: We're still looking at 25 will be in the first quarter second quarter I think we can get there in the first half of the year.

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

Speaker Change: Alright, that's helpful. Maybe just the last one I guess I wanted to come back to this is John.

Brent Edward Thielman: Recent trends in the electrical.

Brent Edward Thielman: A portion of the utility business.

Brent Edward Thielman: Sure Deane counter to what the demand is or could be sort of.

Brent Edward Thielman: David in your remarks.

Brent Edward Thielman: Any sense from customers.

Brent Edward Thielman: Happening there right now.

Brent Edward Thielman: Yeah.

Brent Edward Thielman: Actually become more of a tailwind for that business.

John R. Hewitt: Yeah, I think, you know, a couple of comments and thoughts there. I think, you know, you probably if you've seen some of our larger peers that operate in that market saw some softness in the beginning of this calendar year as well. For us, it's probably a little bit more impactful for us because of our smaller geographic footprint. And so, you know, we've seen some spending dynamic changes with our core client base in our geography related to the not necessarily the number of project opportunities, but the size of them has gotten a little bit smaller, and so that opens the door for more competition.

John: Yes, I think a couple couple of comments and thoughts there I think.

John R. Hewitt: You've probably if you've seen some of our larger peers that operated that market saw some softness at the beginning of this calendar year as well.

John R. Hewitt: For us, it's probably a little bit more.

John R. Hewitt: Impactful for us.

John R. Hewitt: Because of our smaller geographic footprint.

John R. Hewitt: And so.

John R. Hewitt: We've seen some.

John R. Hewitt: Some spending dynamic changes with our core client base and our geography.

John R. Hewitt: Related to the <unk>.

John R. Hewitt: Not necessarily the number of project opportunities, but the size of them gotten smart little bit smaller and so that opens the door up for more competition I mean, I think we're being very thoughtful about our.

John R. Hewitt: I mean, I think we're being very thoughtful about how we price those projects so that we, you know, price those projects within a range that meets our expectations for return on those projects. So we're doing some things there to expand our client base, move into some clients that we've done limited amounts of work for in the past that have a larger spending slate of projects in front of them, both in quantity and quality and individual size of projects. And so any other thing I would tell you, Brent, is that this is probably, at least for us.

John R. Hewitt: Are we.

John R. Hewitt: Those projects that will be priced those projects.

John R. Hewitt: In a range where meets our expectations for a return on those projects.

John R. Hewitt: We're doing some things there to expand our client base.

John R. Hewitt: Move into some clients that we've done limited amounts of work for in the past.

John R. Hewitt: That have a larger spending.

John R. Hewitt: Our slate of projects in front of them, both in quantity and quantity quality and individual size of projects and so.

John R. Hewitt: And the other thing I would tell you. Brian is this is probably not least unique for us I mean, I think we've seen in our history. We've operated in that area for 2025 years.

John R. Hewitt: I mean, I think we've seen in our history, I mean, we've operated in that area for 20, 25 years, and we can occasionally see these cycles through the utility market in that area. And so this is a bit of a down cycle for us. I mean, a similar thing happened to us right after Hurricane Sandy. A lot of our local clientele there spent a significant amount of money to not only repair their facilities after Hurricane Sandy but also to upgrade their systems.

John R. Hewitt: We candidly speech occasionally see these cycles through the utility market.

John R. Hewitt: Then the next couple years were a pretty severe downturn in their spending activities. So, overall, for us, it's unfortunate that that kind of thing happened at the same time we've got major projects sliding to the right, and as I said in my remarks, you've got this convergence of those things happening all at once and creating downward pressure on revenue in the third quarter. We feel pretty comfortable that all those things are going to reverse themselves here as we move out over the next couple quarters.

John R. Hewitt: In that area.

John R. Hewitt: So this is a bit of a down cycle for us I mean, a similar thing happened to US right. After hurricane Sandy had a lot of our local clientele. There spent a significant amount of money to not only repair from hurricane Sandy, but also to upgrade their systems.

John R. Hewitt: A couple of years.

John R. Hewitt: Severe downturn in and they are in their spending activities.

John R. Hewitt: So it's the overall for us its unfortunate that that kind of thing happened at the same time, we've got major projects.

John R. Hewitt: Slide sliding to the right.

John R. Hewitt: And as I said in my remarks, you've got this convergence of those things happening all at once so created.

John R. Hewitt: Downward pressure on our revenue in the third quarter, but.

John R. Hewitt: We feel pretty strong comfortable that thats all of those things are going to reverse themselves here as we move out over the next couple of quarters.

Brent Edward Thielman: Okay, I appreciate it. I'll get back in queue. Thank you.

Speaker Change: Okay I appreciate it I'll get back in queue.

Speaker Change: Thank you.

Operator: and thank you. And one moment for our next question. And our next question comes from John Franzreb from Sidotian Company. Your line is now open.

Speaker Change: And thank you.

John Edward Franzreb: And one moment our next question.

John Edward Franzreb: And our next question comes from John <unk> from Sidoti <unk> Company. Your line is now open.

John Edward Franzreb: Good morning, guys, and thanks for taking the question. I'd like to start, John, where you just left off.

John Edward Franzreb: Good morning, guys and thanks for taking my questions.

John Edward Franzreb: I'd like to start John we just left gorilla.

John Edward Franzreb: I'll make sure I understand this cyclical downturn you referenced in the electrical utility market. That's a quarter or two phenomenon. Are you saying that it may be longer in duration than that? I think it is. I think we're in the middle of it now. I think we started to see some softness earlier, but we thought that there were still plenty of opportunities out there for us. So, and so we have to, you know, do what we normally do and adjust our approach to the market.

John Edward Franzreb: Im not sure I understand this.

John Edward Franzreb: The sick.

John Edward Franzreb: Cyclical downturn you referenced in the electrical utility market.

John Edward Franzreb: That's a quarter or two phenomenon or are you, saying that it may be longer in duration than that.

John Edward Franzreb: I think it's I think we're in the middle of it now maybe we started to see some softness earlier, but we thought that was there is still plenty of opportunities out there for us.

John Edward Franzreb: And so we have to do what we normally do and adjust our approach to the market.

John Edward Franzreb: You know, when we see these cycles of downturns, but they, you know, they, we can't turn it around overnight. And so we're doing, like I said, doing some things to expand our footprint in our northeastern region and expand our client base. And I think that we're going to be able to, we may not in our base client, we're not going to be able to deal with, you know, those changes until that cycle for them, you know, turns around. But we're doing it by how we approach the market and where, what parts of the market we're addressing.

John Edward Franzreb: When we see these cycles and downturns, but.

John Edward Franzreb: You can't turn it around overnight and so we're doing.

John Edward Franzreb: Like I said doing some things to expand our footprint in our northeastern region expand our client base.

John Edward Franzreb: Dan.

John Edward Franzreb: I think that we're going to be able to we may not in our base client.

John Edward Franzreb: Spending, we're not going to be able to deal with those.

John Edward Franzreb: Those changes until that cycle for them it turns around but we're doing it by how we address the market and where what parts of the market we're addressing.

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

John Edward Franzreb: I think one thing to remember when we're thinking about timing on on electrical and power delivery work is that we're also moving into the summer months and the summer months can often be a time when.

Kevin S. Cavanah: Our customers will be naturally spending less just because its peak tower demand Tom.

Kevin S. Cavanah: Right, right. It makes sense, Kevin.

Speaker Change: Alright, Alright makes sense Kevin.

Kevin: And with regard to the large projects shifting to the right.

John Edward Franzreb: And in regard to the large projects that are shifting to the right, I'm curious if there's any commonality between why they are being delayed. Have you seen anything along those lines?

Kevin: I'm curious if there's any commonality on why they are being delayed have you seen anything along those lines.

John R. Hewitt: Now, the commonality is probably in the process of getting from an award to contract completion and into a position to be able to start, you know, whether that's their internal governance processes, whether that's review of scope in those projects, you know, and both in some of those projects, you know, getting to contract completion has also been an additional scope for us. And so, It sort of feels like there's a phenomenon happening that's different than pre-COVID, where, You know, the amount of time it took to get from an award to a final contract for us to be able to start, it sort of feels like it's gotten longer, and I'm not sure what that is or why that's happened, but, you know, the projects, the major projects that we have in backlog, they're solid projects, they're going to go, they're approved by our clients, board of directors, so there's no risk there, it's just the timing to get through that contracting process has just gotten longer.

Speaker Change: No no.

Kevin: The commonality is probably in the process of getting from an award to.

John R. Hewitt: Contract completion and into a position to be able to start.

John R. Hewitt: Whether thats their internal governance processes, whether that's.

John R. Hewitt: Review of scope.

John R. Hewitt: In those projects.

John R. Hewitt: And both in <unk> and some of those projects getting into contract completion that has been also been an additional scope for us.

John R. Hewitt: So.

John R. Hewitt: As sort of feels like there is.

John R. Hewitt: Phenomenon happening that's different than pre Covid, where.

John R. Hewitt: The amount of time it took to get from an award to final contract for us available to start it sort of feels like it's gotten longer and I'm not sure what that is or why that has happened, but the projects. The major projects that we havent backlog. They are solid projects, they're going to go they are approved by our client's board of.

John R. Hewitt: <unk>. So there's no risk there its just the timing to get through that contracting process has just gotten longer.

John R. Hewitt: Okay, all right, that's good to hear. And in regards to the contract, the service contract that was renegotiated, I believe you said it was a 200 basis point hit to the segment gross margin. Is that a one-time kind of a hit as it's been retro-priced? How should we think about that on a go-forward basis?

Speaker Change: Okay, Alright, thats good to hear thanks.

John R. Hewitt: And in regards to the <unk>.

John R. Hewitt: Contract service contract that was renegotiated.

John R. Hewitt: These are 200 basis points.

John R. Hewitt: Segment gross margin.

John R. Hewitt: Is that a one time kind of I think it's been virtually priced.

John R. Hewitt: Should we think about that on a go forward basis.

John R. Hewitt: It was a, I think that was a 200 basis point impact on consolidated margins. It was a much more significant impact on the process and industrial facility segment. That was, I think you should think of that as a one time only.

John R. Hewitt: It was a I think that was a 200 basis point impact to consolidated margins. It was a much more significant impact to the process and industrial facilities segment.

John R. Hewitt: That was I think you should think of that as a onetime.

Kevin S. Cavanah: It primarily, you know, the margin moving forward will be a little bit lower, but the big, the big impact in the quarter was really applying this change to this 3 year contract, and we're in the last year of that contract. So, we've really adjusted the margin we've recognized on these previous revenues. It's just something that's consistent with what we see when we're accounting for longer-term contracts in the construction percentage of completion accounting. Hey John, something else there. I mean, so this is what it is.

John R. Hewitt: Primarily.

Kevin S. Cavanah: The margin moving forward it will be a little bit lower but the biggest the big impact in the quarter was really.

Kevin S. Cavanah: Applying this change to this three year contract and where we are in the last year of that contract. So we really adjusted the margin we've recognized on these previous revenue.

John: It's just.

Kevin S. Cavanah: Something thats consistent with what we see when we're counting for longer term contracts and the construction percentage of completion accounting.

Speaker Change: Hey, John something else there I mean, so this is not.

John R. Hewitt: There. I mean, this is not an execution issue. It's not a relationship issue with the client. It's not a performance issue for them.

Kevin S. Cavanah: An execution issue, it's not a relationship issue with the client is not a performance issue for them.

John R. Hewitt: This work is fundamentally reimbursable work over a three-year period. And for whatever reason, our client is contemplating and making some changes to how they're going to spend their dollars in their maintenance activities and turnaround activities, and they make that change, and we get caught up in it, you know, that's what has led us to have to reevaluate the size of the entire three-year period of that contract. And as Kevin said, we had to make an accounting adjustment because of that. Okay, thanks for that clarification, John.

John R. Hewitt: Work is fundamentally reimbursable work over three year period.

Speaker Change: And for whatever reason our client is.

John R. Hewitt: <unk> is.

Speaker Change: Contemplating and making some changes on how they're going to spend their dollars in their maintenance activities and turnaround activities and they make that change or we got cut we get caught up in it and so.

John R. Hewitt: That's what has led us to we have to reevaluate the size of the entire three year period of that contract and as Kevin said, we have to make an accounting adjustment because of our.

Speaker Change: Okay. Thanks for that clarity, John and I guess, one last question I'll get back into queue.

John R. Hewitt: And I guess one last question; I'll get back into queue. Can you talk a little bit about any potential? cost savings and restructuring actions or leverage that you could still pull out there as you continue to work your way back to profitability. I mean, we continue to manage our cost structure and find a balance between what we have in backlog and the timing of that, what we know about the timing of it, what's in our opportunity pipeline, the commitments we're making to clients for those projects. And so, you know, we're continuing to do that. But, you know, today we do not have any significantly significant planned restructuring things to do.

John R. Hewitt: Can you talk a little bit about.

John R. Hewitt: About any potential.

John R. Hewitt: Cost savings and restructuring actions or levers that you can still pull out there as you continue to work your way back to profitability.

John R. Hewitt: I mean, we continue to manage our cost structure and fine balance between what we have in backlog and the timing of that what we know about the timing of it.

John R. Hewitt: What's in our opportunity pipeline the commitments, we're making to clients.

John R. Hewitt: For those projects.

John R. Hewitt: So we're continuing to do that.

John R. Hewitt: But.

John R. Hewitt: Today, we do not have any significantly significant planned restructuring things to do we've done a lot of that over the last three years, we've focused the company into the markets and the services we want to provide.

John R. Hewitt: We've done a lot of that over the last three years. We've focused the company on the markets and the services we want to provide. You know, that focus has allowed us to build this record backlog. You know, we've exited some businesses, we've sold some businesses, we've gotten out of some properties and some real estate that weren't strategic to the future of the company. And you know, as we continue to add more backlog and start to roll backlog into revenue, I think we're going to start to see our ability to leverage the, you know, the consolidated cost structure we have, our shared services organizations that we've built over time.

John R. Hewitt: That focus has allowed us to build this record backlog.

John R. Hewitt: We've exited some businesses.

John R. Hewitt: We've sold some businesses, we've gotten out of some properties and some real estate for that weren't strategic to the future of the company.

John R. Hewitt: So as we continue to add more backlog and start to roll backlog into revenue.

John R. Hewitt: I think we're going to start to see our ability to leverage the the the.

John R. Hewitt: The cost structure, we have our shared services organizations that we've built over time and.

John R. Hewitt: And you know, so I think we feel pretty good where we are, but that's not to say we will continue to find areas, continue to look for areas in the business where we think we can be more efficient.

John R. Hewitt: So I think we feel pretty good where we are but that's not to say we will continue to find areas continue to look for areas in our business, where we think we can be more efficient.

John Edward Franzreb: Great. Thanks, guys, for taking my questions. I'll get back to you. Thank you.

John R. Hewitt: Great.

Speaker Change: Thanks, guys for taking my questions I'll get back into queue.

John Edward Franzreb: Thank you.

Operator: and thank you. And if you would like to ask a question, that is star 11. Again, that is star 11. One moment for a follow-up question. One moment for our follow-up question, and our follow-up question comes from Brent Thielman from DA Davidson. Your line is now open.

Speaker Change: Thank you and if you would like to ask a question that is star. One again that is star 111 moment for a follow up question.

Operator: One moment for a follow up question and a follow up question comes from Brent Thielman from D. A Davidson your line is now open.

Brent Edward Thielman: Okay. Thanks.

Brent Edward Thielman: I guess, John, you sort of look at the book of business here. It's been a massive increase here over the last, you know, 12 to 18 months. And, you know, based on your commentary, the environment's even better than it was 12 to 18 months ago. And just in terms of the appetite to spend by customers, at least in most areas, your burn rate is going to obviously pick up here at some point.

Brent Edward Thielman: I guess John.

Brent Edward Thielman: Look at the book of business here.

Brent Edward Thielman: Matt did increase a year ago.

Speaker Change: Yes, 12 months to 18 months and.

Brent Edward Thielman: Seems to me.

Brent Edward Thielman: Your commentary the environment, even better than it was 12 to 18 months ago and just in terms of appetite to spend by customers at least in most areas your burn rate.

Speaker Change: Please go ahead.

Brent Edward Thielman: But maybe just your thoughts on the ability to build upon a, you know, one and a half billion dollar book of business here, just in context of all those things and the fact that you will be burning more work going forward. I'd be curious about your thoughts.

Brent Edward Thielman: If we pick up here at some point, but maybe just your thoughts on the.

Brent Edward Thielman: The ability to build upon our $1 5 billion.

Brent Edward Thielman: This here just in context, the moment those things and the fact that you will be burning more work going forward I'd be curious your thoughts there.

John R. Hewitt: Yeah, no, that's a good question. So, you know. We think our opportunity pipeline is pretty solid on projects that are going to move forward. The timing of getting our fair share of those projects, you know, is part of one of the things that we have to handicap. I think they present themselves in both the timing and the size of those projects will give us the ability to maintain a strong backlog, perhaps even in some cases build, and continue to build on that backlog.

Speaker Change: Yeah, No that's a good question so.

John R. Hewitt: We think our opportunity our opportunity pipeline is pretty solid on projects that are going to move forward.

John R. Hewitt: Timing of getting of winning our fair share of those projects is.

John R. Hewitt: Part of the one of the things that we have to handicap.

John R. Hewitt: Think they present themselves.

John R. Hewitt: And both the timing and the size of those projects will give us the ability to.

John R. Hewitt: Bob.

John R. Hewitt: Maintain a strong backlog, perhaps even in some cases build continue to build on that backlog.

John R. Hewitt: And I think we've been very, you know, we've been very fortunate to be able to build on that backlog over the last almost two years. Remember that the dramatic increase in backlog has happened since the end of Q4 of 2023. And so, you know, I think you've been around us long enough that we've said, you know, don't, don't, don't. Don't judge us on backlog quarter to quarter, although it's been great that we've been able to build backlog for the last 11 quarters, but it's more of a long-term trend line.

John R. Hewitt: And I think we've been very we've been.

John R. Hewitt: Very fortunate to be able to build over the over the last almost two years continue to build on that backlog.

John R. Hewitt: Remember that the dramatic increase in backlog has happened since the end of Q4 of 2023.

John R. Hewitt: And so I think you've been around us long enough that we've said.

John R. Hewitt: <unk>.

John R. Hewitt: Don.

John R. Hewitt: Don't judge us on backlog quarter to quarter, although it's been great to we have available to build backlog.

John R. Hewitt: For the last 11 11 quarters, but.

John R. Hewitt: It's more of a long term trend line so.

John R. Hewitt: So, like you said, as revenues start to flow out of that backlog, we could have a quarter or two where that book to bill could be below 1, but then the next quarter could be a dramatic increase at 2.0. And so the projects are out there, both in quality, quantity, and size, that we feel we're going to be able to maintain and or build on.

John R. Hewitt: You said as revenue start to flow out of that backlog, we could have a quarter or two where that where that book to bill could be below one, but then the next quarter could be a dramatic increase.

John R. Hewitt: The tool.

John R. Hewitt: So the projects are out there both in quality quantity and size.

John R. Hewitt: We feel we're going to be able to maintain and build on this backlog as we move through fiscal 'twenty five.

Brent Edward Thielman: Yeah, and I guess I wanted to ask about the quality aspect of it, too, and that I think you mentioned direct margin, you know, X, the under absorption that you just don't have. I think they are pretty good, as you've seen this sort of climate progress, what that means in terms of bid margins, and maybe how that sort of impacts your view of what this business can earn as you start to really execute on this. I mean, the 10 to 12% growth is the starting point, but there are prospects above that, you know, what you're seeing on the bids coming through today.

John R. Hewitt: Yes.

Speaker Change: I wanted to ask about the quality aspect of it too and that I think Devin you mentioned direct margin.

Speaker Change: Yes, Andrew.

Brent Edward Thielman: <unk> just done out.

Brent Edward Thielman: I think a pretty good.

Brent Edward Thielman: <unk> seen that sort of climate progress.

Brent Edward Thielman:

Brent Edward Thielman: That meant in terms of bid margin.

Brent Edward Thielman: And maybe how does that sort of <unk>.

Brent Edward Thielman: Impact your view of what this business can earn in fees that you really execute on that.

Brent Edward Thielman: I know, the 10% to 12% growth starting point, but.

Brent Edward Thielman: And their prospects about that based on.

Brent Edward Thielman: What youre seeing on the bids coming through today.

John R. Hewitt: I think on the projects, especially on the larger projects that are coming through the bid funnel today, I think we've seen a return to more historical gross margin opportunities on those projects, and the risk profile for those projects, our ability to make sure we have the right contingency application, escalation applications, you know, has returned to more normalized levels. And so I feel good about that. I mean, we still have projects and do day-to-day maintenance work and small projects as part of our overall portfolio of services that have some lower margins in them, but they're strategic reasons why we do them and, you know, client relationships to build a workforce, to be able to apply those to other projects, to higher-added value projects. And so I think we feel pretty good about the opportunity to continue to maintain and build a backlog that's got margin potential that gets back to our historical levels.

Brent Edward Thielman: I think on the projects.

John R. Hewitt: Especially on the larger projects that are coming through the bid funnel today.

John R. Hewitt: I think we've seen a return to more historical gross margin opportunities on those projects.

John R. Hewitt: And the and the risk profile for those projects our ability to to make sure. We have the right contingency application escalation applications.

John R. Hewitt: Has returned to more normalized levels.

John R. Hewitt: And.

John R. Hewitt: So we feel good about that I mean, we still have projects and do day to day maintenance work in small projects as part of our overall portfolio of services that have.

John R. Hewitt: We have some lower margins, but theyre strategic why we do it.

John R. Hewitt: But client relationships for us to build workforce.

John R. Hewitt: To be able to apply those to two two other other projects at higher higher added value projects.

John R. Hewitt: So I think we.

John R. Hewitt: We feel pretty good about the opportunity to continue to maintain and build a backlog that's got a.

John R. Hewitt: Margin potential that gets back to our historical levels.

Kevin S. Cavanah: A couple other thoughts is that the markets we've got, the backlog we've got, that funnel, it supports us eliminating the under-recovery issue, which has been probably the most significant issue on gross margin percentage. And it also allows us to should allow us to be where we're consistently fully recovering overheads, just because of the strength of the market.

Speaker Change: A couple of other thoughts is that.

Kevin S. Cavanah: But the markets we've got the backlog we've got that.

Kevin S. Cavanah: Our funnel is it supports us eliminating the under recovery issue, which has been.

Kevin S. Cavanah: The most significant issue on gross margin percentage.

Kevin S. Cavanah: And it also allows us to should allow us to be a where we're consistently fully recovering overheads just because of the strength of the markets.

Brent Edward Thielman: Okay, sorry, one more for me. I guess it's just on the It seems as though there's a recognition that there's going to be increased sort of power demands or load demand kind of going forward, if that seems to be the rhetoric coming out of utilities. And I guess within all that, you know, maybe more of an emphasis on gas as a sort of bridge for power. I know you guys picked up quite a bit in peak shaving work, but maybe, you know, how do you see that market going forward? Can it get better than what it's been for you already? And maybe in other ways, you guys are sort of positioned around that potential phenomenon of using more gas as a power source. Yeah.

Kevin S. Cavanah: Okay.

Speaker Change: One more for me.

Brent Edward Thielman: On the.

Brent Edward Thielman: It seems as though there is a recognition that there's going to be increased.

Brent Edward Thielman: Power demands remote demand kind of going forward.

Brent Edward Thielman: That seems to be the rhetoric coming out of the utilities.

Brent Edward Thielman: And I guess within all of that maybe maybe more of an emphasis on gas as sort of Briggs for power.

Brent Edward Thielman: I know you guys have picked up quite a bit and peak shaving work, but maybe.

Brent Edward Thielman: How you see that market going forward and can get it can you get better than what it's been for you already.

Brent Edward Thielman: And maybe on the way you guys are sort of positioned around that.

Brent Edward Thielman: Pension phenomenon and using more gas with the power source.

John R. Hewitt: Yeah, I really think for us, I'm mixed up. Kind of look at it like the crude oil business, the midstream down into the downstream, you know. I think we're well positioned there, both from gas processing facilities through storage, through LNG, through NGLs, you know, both for domestic use and international use. I mean, I think we're really positioned well in the market for gas and natural gas liquids related demand, both globally and domestically.

Brent Edward Thielman: Yes.

Brent Edward Thielman: I think for us with Mitch.

John R. Hewitt: Kind of look at it like the crude oil business the midstream down into the downstream.

John R. Hewitt: I think we're well positioned there both gas processing facilities through storage.

John R. Hewitt: Through.

John R. Hewitt: LNG through Ngls.

John R. Hewitt: No.

John R. Hewitt: Both for domestic use and international use so I mean, I think we're really positioned well in the market for.

John R. Hewitt: Gas and natural gas liquid related.

John R. Hewitt: Demand in both globally and domestically and so I think our positioning is great I think our ability to provide internally.

John R. Hewitt: And so I think our positioning is great. I think our ability to provide internally, under one brand, to be able to provide the cryogenic storage, design, fabrication, and construction as well as our ability to deal with process elements around the storage, you know, for instance, at peak shaving facilities, gives us a unique position in that market. And so we see, you know, we're looking, we're looking pretty far.

John R. Hewitt: Under one brand to be able to provide the cryogenic storage design fabrication and construction as well as our ability to deal with the process of elements.

John R. Hewitt: Around the storage for instance at peak shaving facilities.

John R. Hewitt: It gives us a unique position in that market and so we see we're looking we're looking out pretty far.

John R. Hewitt: But in the near term, there are other LNG peak shaving opportunities in the market over the next four to six months that you know, we will be, expect to be bidding on, and those projects are good for us. We've got a great brand and reputation for that. We like the competitive set in those markets against whom we compete. And so our expectation is certainly on the larger side of those that we should be able to add more of those projects to our backlog.

John R. Hewitt: But in the near term there there are other LNG peak shaving opportunities in the market over the next over the next four to six months that we will be.

John R. Hewitt: Yeah.

John R. Hewitt: Expect to be bidding and proposing on and in.

John R. Hewitt: And those projects are good for us we've got a great brand and reputation in that the competitor we like the competitive set in those markets, who we compete against.

John R. Hewitt: And so our expectation certainly is on the larger size of those that we should be able to add more of those projects into into our backlog.

John R. Hewitt: But also, the other thing that's going on in those markets is there are a lot of repair and upgrade projects that are happening to existing infrastructure for all the same reasons, for all the same market dynamics, which creates almost a better opportunity for us. Even though they're smaller projects, our ability to go in and inspect and repair existing storage infrastructure, to go in and upgrade liquefaction equipment or boil-off gas equipment or other pieces of an existing facility, again, with our ability to wrap our cryogenic expertise around that really, you know, narrows down the competition of someone that can provide a full engineering and construction solution to our clients.

John R. Hewitt: But also the other thing thats going on in those markets is there is a lot of repair and upgrade projects that are happening to existing infrastructure.

John R. Hewitt: For all of the same.

John R. Hewitt: For all the same market dynamics, and which Tracey if I was even a better opportunity for us even though they are smaller projects, but our ability to go in and inspect and repair existing storage infrastructure.

John R. Hewitt: To go in and upgrade the liquefaction equipment or boil off gas equipment or other pieces of an existing facility.

John R. Hewitt: Again, with our ability to wrap our cryogenic expertise around that really.

John R. Hewitt: Narrows down the competition of some of that can provide a full.

John R. Hewitt: A full engineering and construction solution to our clients and so again those are necessarily big projects. They can be in the sub $50 million kind of projects, but there are number of them out there and in the near term and.

John R. Hewitt: And so, again, those aren't necessarily big projects. You know, they could be in the $50 million kind of projects, but there are a number of them out there and in the near term. And they provide good opportunities for us, good margins, and absorb overheads. And so I think we're very well positioned.

John R. Hewitt: They provide good opportunity for us good margins absorb overheads.

John R. Hewitt: So I think we're we're very well positioned from a.

John R. Hewitt: From increased demand for.

John R. Hewitt: For natural gas and natural gas related products.

Brent Edward Thielman: Really helpful. Thanks for taking all the questions. Best of luck. Sure.

Speaker Change: Really helpful. Thanks for taking all my questions sure.

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

Brent Edward Thielman: And thank you and I'm showing no further questions I would now like to turn the call back over to Kelly Smith for closing remarks.

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

Kellie Smythe: Thank you as a reminder, matrix will be participating at the upcoming Stifel Stifel Cross sector insight conference on June 4th and fifth in Boston, If you would like additional information on our attendance at this event I would like to have a conversation with management. Please feel free to contact me through matrix service company Investor relation.

Operator: <unk> website. Thank you for your participation in time.

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

Speaker Change: Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.

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