Q1 2026 Matrix Service Co Earnings Call
Speaker #2: Good morning and welcome to the Matrix Service Company Conference call to discuss results for the first quarter of fiscal 2026 . Currently , all participants are listen only mode .
Speaker #2: Later , we will conduct a question and answer session and instructions will be given at that time . If you require assistance at any time , please press star one one on your telephone .
Speaker #2: As a reminder , this conference call is being recorded . Unlike the current , turn the conference over , today's host , Miss Kellie Smythe , Senior Director of Investor Relations for Matrix Service Company .
Speaker #3: Thank you . Marvin . Good morning and welcome to Matrix Service Company's first quarter fiscal 2026 earnings call . Participants on today's call include John Hewitt President and Chief Executive Officer and Kevin Kavanaugh , vice president and chief financial officer .
Speaker #3: Following our prepared remarks , we will open the call up for questions . The presentation materials referred to during the webcast today can be found under Events and Presentations on the Investor Relations section of Matrix Service .
Speaker #3: Company.com . As a reminder , on today's call , we may make various remarks about future expectations , plans , and prospects for matrix service Company .
Speaker #3: They constitute forward looking statements for the purposes of the Private Securities Litigation Reform Act of 1995 . Actual results may differ materially from those indicated by these forward looking statements .
Speaker #3: 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 .
Speaker #3: With the SEC . The forward looking statements made today are effective only as of today . To the extent we utilize non-GAAP measures , reconciliations will be provided in various press releases .
Speaker #3: Periodic SEC filings and on our website . Finally , all comparisons today are for the same period of the prior year , unless specifically stated .
Speaker #3: Related to investor conferences and corporate access opportunities . We will be participating in the Sidoti and Company year end virtual investor conference on December 10th and 11th , 2025 .
Speaker #3: We will also be participating in the Northland Capital Markets Growth Conference on December 16th. This conference is virtual, so 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.
Speaker #3: As we shift our focus to safety , I want to underscore its vital importance to our business . At Matrix , Safety stands as our foremost core value and as Mr. Hewitt frequently emphasizes , nothing outweighs the physical and mental well-being of our employees , subcontractors , clients , and others who may be present at our job sites or in our offices .
Speaker #3: This is simply this is not simply about compliance . Its about continuously cultivating an environment where safety is ingrained in our culture . Every one of us deserves to feel safe at work and return to home to our families and loved ones .
Speaker #3: At the end of the day . And while safety is always the right thing to do , it's also a business imperative . It strengthens our competitive edge , enabling us to bid on and secure vital projects , foster lasting client relationships , and attract and retain top talent .
Speaker #3: Our clients trust us to execute their projects safely and with unrivaled quality . This trust is something we value and we hold ourselves accountable to the highest standards by by maintaining our unwavering commitment to safety , we position matrix not just as a leader in engineering and construction , but as a dependable partner dedicated to excellence and care .
Speaker #3: I will now turn the call over to John .
Speaker #4: Thank you , Kelly , and good morning , everyone . We begin fiscal 2026 with strong execution , resulting in double digit revenue growth and our highest quarterly gross margin in over two years .
Speaker #4: This performance reflects the continued maturation of our backlog and the disciplined approach we've taken to project bidding and delivery . Bidding activity remains healthy across our segments , and we saw a solid level of new awards .
Speaker #4: Our opportunity pipeline also remains robust for not only near-term projects , but several large multi-year projects with anticipated award dates beginning in late fiscal 2026 and into fiscal 2027 .
Speaker #4: Based on our first quarter performance . Our strong backlog and the visibility we have today , we are reiterating our full year revenue guidance of 875 to 925 million .
Speaker #4: Typically , the first quarter reflects a seasonal slowdown in demand for maintenance and repair services this year . That was largely offset by increased activity on larger projects .
Speaker #4: Our mix of project work drove gross margin improvement , representing our best quarterly gross margin in more than two years . We expect continued margin improvement as we move through fiscal 2026 , supported by conversion of backlog to revenue , Award activity in the quarter was stable , resulting in a book to bill of 0.9 , and we ended the quarter with total backlog of 1.2 billion .
Speaker #4: During the first quarter , we removed approximately 197 million from backlog related to projects . While Kevin will provide more detail in his remarks , these removals do not reflect the reduction in demand changes in the market or business performance issues .
Speaker #4: In both cases , the clients change their commercial strategy and neither project had mobilized . Importantly , the removal of these projects from our backlog does not impact our Q1 results or full year guidance .
Speaker #4: We continue to be disciplined in our bidding and contracting efforts to ensure our project risk and financial return profile meets our standards . Now , let's talk about our markets and what we see in the organic opportunities that will drive the business .
Speaker #4: First , our total opportunity pipeline currently sits at 6.7 billion , with the majority of those opportunities in storage and related facilities for LNG , NGLs and ammonia , which feed our storage solutions and utility and power infrastructure segments .
Speaker #4: We continue to see a steady level of incremental bidding opportunities , supported by strong investment in domestic infrastructure and a favorable regulatory environment .
Speaker #4: Growing demand for sustainable and reliable power is creating significant project opportunities upstream from the massive investment in data centers and advanced manufacturing . Among other expanding electrical consumers .
Speaker #4: So whether it's LNG for backup fuel or peak shaving upgrades to existing LNG facilities , new base load or backup power generation or substation upgrades , and new construction , our business will benefit from these investments in this critical infrastructure .
Speaker #4: And while the timing of awards can be fluid over the coming quarters , we expect that the level of awards will be similar to what we saw during the first quarter .
Speaker #4: This award portfolio will be made up of mid-size projects on top of our normal cadence of small projects and maintenance . These projects will reinforce our strong backlog , continue to provide more predictable revenue flow , and build our resource base as the business grows .
Speaker #4: One recent example is the award of a balance of plant construction at the Delaware River . Partners multi-use port facility in Gibbstown , new Jersey , that will support growing export demand for NGLs , including propane and butane .
Speaker #4: This award , which was taken into backlog in the first quarter of fiscal 2026 , follows a fiscal 2025 award associated with the construction of a large , full containment , dual service storage tank at the same facility .
Speaker #4: These two projects represent our ability to provide integrated delivery for complex storage facilities , which is a key differentiator for the business . As we move into late fiscal 2026 and into fiscal 2027 , we anticipate a Re-acceleration in award activity for larger , multiyear projects , which we are currently in the process of pursuing in our process and industrial facility segment .
Speaker #4: Our strategic focus is to expand our markets , client base and footprint to build backlog and revenue while executing safely with high quality and financial outcomes .
Speaker #4: Actions include strengthening our position in core geographic markets , realigning our business development resources with our growth priorities , and leveraging our strong customer relationships to expand organically .
Speaker #4: Focus areas include repair , maintenance , turnarounds , and small cap projects in various process industries , including refining , chemicals and renewable fuels , mining and minerals , in support of the demand for nonferrous metals and rare earth minerals , thermal vacuum chambers , where we hold dominant position , as well as various natural gas value chain opportunities .
Speaker #4: We are positioned to capture opportunities in this segment and deliver improved results over the long term . With project activity continuing to build due to the steady conversion and replacement of our backlog , we are highly focused on ensuring that we deliver consistent performance for our customers and the highest level of quality and safety .
Speaker #4: The recent changes to our organization structure , which we have talked about in our previous calls , has enhanced our agility , competitiveness and performance .
Speaker #4: These changes , along with strategic actions we have taken over the last few years , are strong service , offering positioned us to deliver on current commitments and compete effectively for the substantial opportunities within our robust pipeline .
Speaker #4: We remain committed to disciplined capital allocation , our strong balance sheet supports the working capital needs of active projects as these jobs progress through key execution phases , as we return to sustained profitability in the coming quarters , we'll deploy capital thoughtfully , targeting growth opportunities that expand our market share and drive long term shareholder value .
Speaker #4: In summary, I'm proud of the team's continued execution as we proceed through this critical chapter of growth for Matrix. We have plenty of opportunities ahead of us, which will not only support this fiscal year but will continue to create growth in fiscal 2027 and beyond.
Speaker #4: I am confident that our focus on our core pillars of win , execute and deliver will serve to drive compounding profitable growth and long term value for our shareholders and customers alike .
Speaker #4: So with that , I'll turn the call over to Kevin .
Speaker #5: Thank you John . The first quarter of the year went about as we anticipated from an operating results balance sheet , cash flow and project award perspective .
Speaker #5: Revenue of 211.9 million represented a 28% increase compared to 165.6 million in the first quarter of fiscal 2025 . This is mainly due to growth driven by larger new construction projects and the storage and terminal solutions and utility and power infrastructure segments .
Speaker #5: We expect this revenue growth to continue as we move through the rest of the fiscal year. Consolidated gross profit increased 82% to $14.2 million in the first quarter.
Speaker #5: Compared to 7.8 million in the prior year , with strong project execution in both periods , the gross profit increase was the result of revenue growth as well as improved construction , overhead recovery , consolidated gross margin improved to 6.7% versus 4.7% in the first quarter of fiscal 2025 .
Speaker #5: CA expenses were 7.7% of revenue , or 16.3 million , compared to 11.3% , or 18.6 million , in the same quarter last year .
Speaker #5: The 2.2 million decrease is primarily the result of the efficiency improvement , changes implemented by the company over the last two quarters . The company will continue to work to leverage SG&A to its 6.5% target as revenue grows , while also investing in resources when needed to support strong market demand and growth in our business .
Speaker #5: As expected , the company incurred $3.3 million of restructuring costs in the first quarter related to the efficiency efforts mentioned , the company has completed the bulk of restructuring activities and expects expects minimal restructuring costs during the remainder of fiscal 2026 .
Speaker #5: For the first quarter of fiscal 2026 , the company had a net loss of 3.7 million , which includes a 3.3 million of restructuring costs as compared to a 9.2 million net loss in the first quarter last year .
Speaker #5: GAAP EPs was a loss of $0.13 compared to a $0.33 loss in the prior year . Excluding the restructuring cost . Adjusted EPs was nearly break even at a loss of $0.01 in the first quarter .
Speaker #5: This performance reflects the operating leverage inherent in our business model and is consistent with the expectations that we have previously communicated , which is that we expect to achieve break even on a GAAP net income basis at a quarterly revenue level of 210 to 215 million .
Speaker #5: Adjusted EBITDA in the first quarter was a positive 2.5 million , compared to a loss of 5.9 million in the first quarter of last year .
Speaker #5: Moving to the operating segments , let's start with storage and terminal solutions , which represented 52% of consolidated revenue . First quarter revenue in this segment was 109.5 million , compared to 78.2 million last year .
Neither of them is impacting our fiscal 2026 revenue. Guidance for each project reflected a different situation.
The first and largest largest was within our process and Industrial facility segment and was formally awarded to us in late fiscal 2023.
Our scope will work on this project.
Was construction only and the start of fieldwork had been had already been delayed by over a year due to slow progress on scoping design, development and Engineering, which is outside our responsibility.
Just recently, the owner decided to adjust its execution and Contracting structure, which resulted in their decision to rebid the construction portion of the project.
The project will be rebid and packages later this year, and we intend to submit submit bids on certain aspects of our original scope.
That said, due to this change, we removed the original awarded project from our backlog consistent with our backlog recognition policy.
The second project was in our utility and power infrastructure segment. In this case, the project was formally awarded in the fourth quarter of fiscal 2025.
Subsequently, the client saw it to modify the terms and conditions of this agreement in a way that significantly increased our risk on the project.
This change was inconsistent with both the, as bid basis of our proposal.
And our commercial policies as a result, the award was rescinded and we we removed it from backlog.
After removal of these 2 projects backlog, remains strong at 1.2 billion and is supportive of our Revenue, guidance of 875 to 925 million.
When we started the year, we mentioned that we were going into the year with 85% of our Revenue booked at the midpoint of our guidance range.
As a result of awards during the first quarter, this percentage has decreased decreased to more than 90%, I'm sorry. The percentage is increased to more than 90% And we continue to be confident in our ability to achieve our Revenue guidance,
The improvement in our Consolidated Revenue combined with continued, focus on execution excellence, and leverage of our construction overhead and sgna cost structures. Well, allow us to return to profitability as the fiscal year.
And make us and makes any of your progress towards the achievement of our long-term Financial targets.
This concludes our preparative remarks. We'll now open for questions.
Thank you at this time. We'll conduct a question and answer session. As a reminder test, the question, you will need to press star 1 on your telephone and wait for your name. To be announced to withdraw your question. Please, press star 1 and again, please stand by while we compile the Q&A roster.
In our first question, we have John, Franzreb of Sidonian Call. Your line is now open.
Um, good morning everyone. And thanks for taking the questions.
Um, I just want to start with where you you finished about those 2 projects. Uh it doesn't seem like there's much in common with them and it seems like the start date should probably do in 2027 if not later but I am curious if that suggests that the competitive landscape as 1 was rebid and um 1 that was the terms were changed a bit, the competitive landscape. So we're getting a little bit tougher for larger projects out there.
Uh, I I don't think so. I I don't think.
Both those situations were really not associated with.
Um, um,
Strategy and, and, and try and do it a different way.
And so and then the other the other project, really? I I frankly, applaud our teams for not being sucked into taking a job that had a much higher risk component certainly 1 that
1, that we were not. Um,
Not giving additional remuneration for taking on that risk, and I think we're able to make that decision.
To do that because there's a significant amount of opportunities in the marketplace, uh, for that kind of work, where, you know, we've got a very strong strong, uh, brand position. We got a very strong position in that in those markets. And, um, so I I think at the end of the day, it it was a positive thing. Particularly when neither 1 of those projects really impact our fiscal 2026
Got it, got it. And John I might be reading too much into this but I think in the prepared remarks you you mentioned that a midsize projects are growing. But later in your prepared remarks you said that you look for a re acceleration of large Project work. Did I hear that properly? And and if so what's the timing of when you expect you know, large jobs to be let out again.
Yeah, I mean, we put some pretty large projects into our backlog 8 uh, 18 months ago. And so it's just the timing of the development of the bigger uh energy facilities, certainly around LNG and ngls ammonia jobs. It takes just takes longer to get those things through a proposal process and development process. And um, so you know, there's a number of those projects out there that we are, we are tracking. We are maybe providing, um, upfront uh uh feed work for uh so maybe some engineering development scheduling budgeting helping some of our core clients and and those markets that are continuing to add more infrastructure or planning to add more infrastructure and so it it just it's just a timing thing. And so we're really comfortable about our positioning their the number of opportunities that are out there that we're going to be able to play a role in and um
So but I mean, my comment there is over the over through this fiscal year, there continues to be a lot of what we would call midscale projects, uh, available to us. I think the we announced the DRP project, uh, this morning which is went into backlog and the, our first quarter, typical kind of projects that we see out there in our pipeline that we're currently bidding on or have bid. And that we're working through details with the clients on that so and each of those projects individually
Individually.
You know, they're not short-term projects, they may not be a 3-year project, but they could be 12 to 18 months. They allow us to continue to maintain a strong backlog to really build our teams as the bigger projects come, uh, down through the opportunity Pipeline. And, and so I, you know, feel really good about a our, our ability to to continue to maintain a solid backlog and to uh, continue to strengthen the company's operations through a lot of these, uh, what you'd call smaller projects on these projects aren't certainly aren't tiny uh but they're not the kind of the mega stuff though for us to make stuff that we put in the backlog, you know, 18 months ago.
Understood and just a question on, on the restructuring. Um, I'm wondering how that changes
uh, the break even Dynamics, um, and there's if there's any other uh,
Things that you're thinking about as far as the year head to any of the kind of actions.
Yeah. So
Um, decreases that which, which does lower our break even point. And, you know, you know, at this time last year, we were talking about it took us 225 million of of quarterly Revenue to get to to break. Even that's decreased to somewhere between 210 and 215 million uh to get to break even. Um it's that those
Those changes also decreased the level of Revenue required for us to reach full construction overhead cost recovery. That's now around 250
Um, and a decrease, the the amount of Revenue we need to, to get our sgna down to 6.5% Target. That's, that's also down to 250. So that's definitely had a, a positive impact on the, um,
earnings power of the company.
There. Um, with that said, we're we're continuing to to focus on improving the uh, the business and and and um, you know, have have actions and plans in place to, to address all the issues within the about the business to, to continue to focus on, um, returning to profitability and producing the strong bottom line, um, on
The basis.
Got it. That was very helpful, Kevin. Um, I'll get back to you. Thank you.
Thank you. 1 moment for our next question.
Our next question comes from line of Auggie Smith of T.A. Davidson. Your line is now open.
Good morning guys. Uh, thank you for taking the questions today.
Um, to begin. Uh, can you guys touch a bit more on uh kind of what projects you're targeting within the gas? Gas, gas power project space. Um, in previous conversations, you would mentioned, you're looking at some gas power plant work, but kind of more specifically what are your capabilities there? Um, and how do you see that out? Playing out moving forward. Um, and then is this something we should be considering for, uh, fiscal 26, thanks.
Yeah, so we if you've been around us for a while, uh, when there was a lot more activity in the late 90s early 2000s, uh, we as a company and and and part of our Legacy members of our company were involved in, in a number of the larger combined cycle, gas fire, power, plant buildout uh across the country.
California, Ohio, independent, Pennsylvania. So a variety of different areas. So not only as acting as a general contractor uh on those projects. But in some cases we would, you know, provide the center line erection, uh, boiler erection, the mechanical piping systems. And so we have those skill sets, reside in the organization and we have those capabilities, um, over the last. Certainly, the last 3 years is that market, you know, flattened out, you know, preco
You know, those resources were applied into other Industries and and other markets that were maybe gaining strength. So so we can see, you know, in the in the current, you know, market for power generation and you know, a combination of increased demand for Generation, uh, looking for more.
Sustainability, more reliability. And you know, maybe a little cleaner, uh, generation moving from coal to natural gas, you know. So so it plays very well for us. We so we have those all those construction skill sets to not only.
I have a role in the construction of New Power Generation, but also to handle all the backup fuel, specifically fueling natural gas and LNG.
As well as Peak shaving terminals. So we have a very strong brand position there. And so if you think about Upstream from the new major, uh, demand for Generation back up into existing power, power power, uh, Supply
You know, they need to expand their generation resources. They need to make sure they have reliable reliable generation, uh, backup fuel for that generation. And so, all those things are creating project opportunities for us and frankly in our opportunity pipeline. You know, I would expect that to grow here over the next year. As more power generating related projects come into uh move from our prospects, phase to into our opportunity to pipeline.
Okay, awesome. Thank you for the the added color there and then kind of um shifting gears again, back to the backlog. Um, so obviously backlog was um impacted this quarter by the removal of those 2 Awards. Um, but kind of moving forward, should we continue to view backlog in the 1 billion dollar plus range, um and then kind of more specifically you guys mentioned that the process and Industrial facilities project, that was removed was because the client wanted to split it up into multiple bids. Do you guys Envision this um, kind of becoming a pattern with other clients as well or do you guys think of this as as more of a 1-off?
I think that's a 1-off situation for at least for the projects that were involved in. I would say what we're start, what we're seeing. More of a turn is clients that are trying to lock up resources and construction, engineering and construction capabilities. And so, in some cases, they are looking at alliances looking at partnering agreements and looking at more, uh, better risk sharing uh, through reimbursable, kind of contracts. So I think we're in that place in the in the market.
Confirm is becoming a seller's market, but certainly I think that pendulum is moved in a little bit in some areas and some regions of the country where you're going to see, you know, more more contractors getting locked up with with owners uh, to get their infrastructure put in place. So, I think right now it's a it's a pretty good place to be in, uh, a to have the kind of Branch strength that we have in in in capabilities, in the markets, we can perform in and uh but you know not, you know, not just for us, certainly for, you know, some of our peers as well.
Okay, thank you. Uh very much appreciated. I'll leave it there.
Thank you.
Thank you. I'm showing no further questions at this time, I'll now turn it back to Kelly Smith for Quality remarks.
Thank you as a reminder that sidonian company year end virtual investor conference is scheduled for December 10th and 11th. We will also be participating for the first time in the Northland Capital markets virtual growth conference on December 16th 2025. If you're participating, we look forward to speaking with you, additionally, if you'd like to have a conversation with management, please contact me through the Matrix Service Company investor relations website. You may also sign up to receive mtrx news by scanning, the QR code on your screen. Thank you for your time.
Thank you for your participation. In today's conference, this is conclude the program, you may now disconnect