Greetings ladies and gentlemen and welcome to theMatrix Service Company second quarter fiscal year 2008 earnings results. (OperatorInstructions) It isnow my pleasure to introduce your host, Ms. Truc Nguyen, Investor Relations forMatrix Service Company. Thank you, Ms. Nguyen. You may begin.

Thank you, Doug. I would now like to take amoment to read thefollowing statement: various remarks that thecompany may make about thefuture expectations, plans, and prospects for Matrix Service Company constituteforward-looking statements for thepurposes of thePrivate Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated bythese forward-looking statements as aresult of various factors, including those discussed inour annual report on Form10-K for our last fiscal year and insubsequent filings made by thecompany with the SEC. Now I would like to turn thecall over to Michael Bradley, President and CEO of Matrix Service Company.

Thanks, Truc and good morning to everyone. On theconference call today we also have Les Austin, Matrix Services’ Chief FinancialOfficer. Before turning thecall over to Les to discuss thefinancial results inmore detail, there arethree things that I want to cover on thecall today. First is theperformance of our overall business absent LNG, which had anoutstanding quarter. Second is thecharge and the outlookfor our LNG project. Third is theoutlook for our corebusiness going forward into fiscal 2009, which based on discussions with ourcustomers and bidding activity, remains very positive. Regarding thefirst topic, we arevery pleased to report that our overall business, again excluding theLNG project, performed extremely well during thesecond quarter of fiscal year 2008. Margins inboth of our operating segments increased compared to thesame quarter last year and were also up from thefirst quarter of thecurrent fiscal year. Repair and maintenance margins increased to 16.7% versus15.1% and construction services, excluding theLNG charge, increased to 13.6% versus 11.1% compared to thesame quarter last year. We arevery pleased with theoverall growth in ourrevenues and our ability to improve profitability. We did experience adecline in revenuesassociated with both our electrical and instrumentation and turnaroundbusiness, as was expected, going into fiscal year 2008. We expect revenues forboth of these segments to improve infiscal 2009 based on activity we areseeing today. So insummary, we are verypleased with theperformance of our corebusiness during thesecond quarter. Thesecond item I want to talk about is theLNG project and theadditional costoverruns experienced inthe second quarter,which was obviously disappointing. As stated inthe earnings release,we recorded a chargeof $16 million due to anincrease in theforecasted cost tocomplete this project. Clearly this is asignificant changewhich comes on theheels of the $11.3million charge infiscal 2007. I want to discuss what hashappened to cause this latest charge and where we stand on theproject today.…

Thanks Mike. Thespecific details of thesecond quarter and thesix monthsyear-to-date performance hasbeen disclosed in ourpress release this morning, soI would like to highlight certain items for each of theoperating segments. Total revenues for thesecond quarter were $194.7 million, up 17% compared to thesecond quarter of fiscal 2007. Net income for thesecond quarter of fiscal 2008 was $200,000 or $0.01 perfully diluted share compared with $8.1 million or $0.31 perfully diluted share for thesecond quarter of fiscal 2007. Included inthe current quarter resultswere pre-tax charges of $16 million for additional costs overruns on our Gulf Coast LNG project; $1 million tofully reserve areceivable from acustomer who filed bankruptcy inthe second quarter;and $900,000 for anon-recurring employee benefit cost. Theimpact on earnings perfully diluted share for these charges was approximately $0.39 pershare. Matrix Service also recorded a$700,000 tax benefit inthe second quarter forthe continuingassessment of therealizability of State investment tax credits. The$16 million charge recorded on theGulf Coast LNG project inthe second quarter offiscal 2008 reflects management’s best estimates of thetotal revenues to berealized, including incentives and total costat completion. Thecurrent forecast includes actual costs and productivity data as of December 31, 2007 when theproject was 84% complete and detailed costprojections for allremaining activity. Thecurrent forecast also reflects themanpower and costnecessary to achieve our contractual delivery date for each of thethree tanks being constructed by Matrix Service. Based on allavailable information, we believe we will achieve thedelivery dates for allthree tanks and theforecasted revenues include receipt of incentive payments tied to meeting thosedates. The contractalso provides for liquidated damages as penalty for missing thedelivery date, none of which have been included inthe current forecastas we believe we will meet thedelivery date. However, theschedule is not without some risk and itis possible an eventor series of events could prevent us from meeting thedelivery date,…

Thanks, Les. As we stated inour press release, based on theresults of our LNG project, we will not meet our earlier gross margin guidance.We believe gross margins inthe remaining sixmonths of the fiscalyear to be inthe range of 11.5% to13.5% which would include approximately $27 million of additional LNG revenues atzero gross profit. We still believe our original range of $700 million to $750million is appropriate, and SG&A expense should still bein therange of between 5% and 5.5%. Again, we arevery pleased with theunderlying performance of our business inthe quarter. We feelgood about our outlook, alot of possibilities and opportunities, and continued strong markets that we seein theforeseeable future. We look forward to continued progress as we moveinto the third quarterof fiscal 2008, and we thank you for your support. Now we’ll open itup for questions.

Your first question comes from Matt Duncan - Stephens, Inc.

Good morning, Mike and Les, and congrats on agreat quarter excluding that LNG project. Thefirst couple of questions I have arereally related to theLNG project, and then I’ll moveon to half year topics. First of all, how confident areyou guys that this $16 million is going to cover therest of the costs? Howtight is the timelineand is there much wiggle room for you guys if things doget delayed just alittle bit?

We’ve spent alot of time and effort indefining this current charge and we feel confident that based on theitems that we laid out, excluding excessive weather delays or issues related tocraft turnover or loss, we feel good about thenumber that we have put forward. Again, theway we looked at itis we incorporated theexperience that we’ve had on tank 1 and assumed that same experience on tanks 2and 3. As I said, I would hope we would getbetter but we are notgoing to forecast that.

What is thetimeline like in theprojections that you guys had made? Les was running through some numbers aboutsome incentive payments you getfor getting done on time. How much wiggle room doyou have in thetimeline?

Well, I won’t discuss specifics, but I would saythat we have built into our forecast some weather delays and other delays inorder to meet those dates. Thefirst tank is scheduled to come online February 18th sowe are closing inon that date. Tank 2 is inMarch and tank 3 is inApril. So, right now, we feel comfortable with our ability to meet those datesand again, we have factored insome contingency for weather, but anything excessive or unusual events have notbeen incorporated.

That project over thenext two quarters, would theincentive payments occur over time or dothose only occur at theend? So, where do Ineed to put those inrevenue in my model?

Well, therevenue is modeled as we said, about $27 million for theremaining two fiscal quarters. Included inour total estimate to complete is theincentive revenues of $7.8 million. That’s how we arrive atthe total loss that werecorded the projectat.

Sothat $7.8 million inincentive payments is not part of the$27 million inrevenue?

Itis part of the $27million in revenue.It’s part of our total revenue estimate that we have for theproject.

Soyou are recognizingthat as you go then?

That is correct.

Les, how should I divide up that $27 million between thethird and fourth quarters? Just divide itin half or is theregoing to be onequarter that’s alittle heavier than theother?

Well, I think as we’ve stated, we’ve been working on theproject, the date of thethree tanks, the firstone is in February, thesecond one’s in Marchand the third one’s inApril. So logically, allthree months of thethird quarter we’re going to beworking on the LNGproject. Theoretically, we’ll only beworking two months out of thefourth quarter with alittle clean-up inMay.

As I look atyour backlog, specifically for specialty, what’s inbacklog now? What’s on thehorizon for that specialty construction segment once you finish this LNGproject?

Thecurrent backlog, as we’ve discussed, has$27 million related to theLNG project. The otherspecialty work is not significant. It’s inthe $3 million to $5million range, currently associated with some stack liner projects that we’reworking on. But as Mike had said inhis comments, there is quite agood deal of market activity for that group that we foresee inthe future going intofiscal 2009.

Let’s moveon then and talk about gross margin. Itlooks like you guys have raised thehigh end of your gross margin guidance for theremainder of the yearfrom 12.5% to 13.5%. Can you talk alittle bit about what’s driving these better margins and what made you decideto do that?

Well, obviously we had thehigher margins year-to-date that we’ve talked about, absent theLNG charge it was 15% inthe quarter and itwas 14.9% year-to-date. We have experienced extremely good margins inboth the repair andmaintenance and theconstruction services segment, repair and maintenance up over 16%. With those activity levels and as theLNG project begins to wane, it’s our expectation that thehigh end of our margin guidance could beexceeded and that’s why we chose to raise itto 13.5%.

First, talk about theAST business and what some of thegrowth drivers have been there? We know some of theend market factors but just walk us through alittle bit of detail because that business hasbeen doing very, very well for you guys. Finally, Mike, you talked about theturnaround business being better infiscal 2009 and 2008. I don’t know ifthere is any way to quantify that, or just maybe give us alittle bit of detail behind that comment? You did $121 million inrepair and maintenance revenue for downstream petroleum infiscal ‘07. Is that thetype of year you arethinking about for fiscal ‘09?

Let mefirst talk about theAST, aboveground storage tank business. We arecontinuing to seesignificant activity inboth new terminals and terminal expansion. We have been meeting with severalclients to discuss plans and we aretypically talking about plans over thenext two or three years. We areseeing a lot of demandas a result of theCanadian crude oil and thepipeline expansions associated with that. We arealso seeing expansion of import terminals inthe US,as well as some pipeline expansions that arebeing planned which will add additional terminals. This is primarily gearedtowards crude oil and refined products. We also seesome opportunities related to thealternative energy; ethanol, biodiesel and some of those facilities and we’restarting to look atsome projects associated along those lines. We’re just seeing really just demandacross the countryright now. It’s anextremely strong market. As I mentioned, we have also set up anoperation up in Western Canada tocapture some of theopportunities that we seedeveloping up there, not only with new clients, but with some of our current keyclients that we service inthe United States. As itrelates to the turnaroundbusiness, typically we seein advance what therefiners are planningover the year. Goinginto fiscal year 2008 we did not seethe same kind ofactivity that we saw infiscal 2007, and so weexpected theturnaround business to beslightly down for this fiscal year. What we areseeing now though is there’s more customers starting to make commitments for2009 and we arestarting to get someof that business set into place. So, itis a good indicatorbased on what we areseeing now that we expect that turnaround activity to pick up in2009.

Your next question comes from John Flanagin - First AnalysisSecurities.

Can you talk about themix in thebacklog at Novemberquarter end between construction services, repair and maintenance, and thenperhaps comment on themix of the additions?

The$486 million is made up of about $372 million, approximately, on theconstruction services side and about $113 million, $114 million on therepair and maintenance side. As far as theadditions, let me seeif I can find that for you. Additions to backlog inthe quarter were $181million, and about $105 million of that was inconstruction and about $77 million inrepair and maintenance.

Looking atthe outlook comments,thanks for theturnaround color. But also on electrical instrumentation, why doyou expect things to pick up infiscal ‘09? What end-market dynamics lead you to that conclusion?

Well, acouple of things. One is some of our electrical and instrumentation businesswas impacted by lower turnaround activity that we saw or have been experiencingthis year. I recently have brought ina new person to headup our union business and hebrings a lot ofexperience in powerand electrical instrumentation as well as other construction. But we areseeing a lot ofopportunities for new capital construction going into ‘09 and we arereally focusing on higher margin opportunities and expanding our marketpresence. We believe, based on theactivity we are seeingtoday, there is a goodopportunity to continue to growthis business and we have anexcellent electrical and instrumentation group located back East, agood reputation, and just again, seeing theactivity we have infront of us areanticipating a betteryear in fiscal year2009.

On theAST side, is thedemand for craft that’s affecting LNG ageneral pattern ineither that geography or just overall where you arejust having to really fight to hold on to your craft or AST work?

Thecraft labor market ingeneral continues to bepretty tight throughout our business. We have had to significantly step up ourrecruiting as I’ve talked about inprevious conference calls, and we arehaving success incontinuing to recruit people to staff our jobs. I would sayit’s a continuedchallenge for all ofus. TheGulf Coastis particularly challenging, just given theamount of work going on inthe Gulf Coast, thenumber of LNG projects, you’ve got refinery expansions and other work and so,it’s particularly strong ina very tight market.

Your next question comes from Rich Wesolowski - Sidoti.

Acouple of points of clarification on theLNG job. First, theactual projected costs for theproject are still inline with the lower$13 million estimate that you gave inlate December, correct?

Well, we aresaying that our current costestimate is $16 million and included inthat estimate is some contingent costs for areas that have given escalations inthe past.

Soif you didn’t have any escalation inthe past, you wouldcome out somewhere lower than $16 million, but you aregiving yourself alittle bit of cushion, is that correct?

Well, I think as Mike talked about, we areputting into our costforecast theproductivity and theinefficiencies that we experienced on tank 1 into tanks 2 and 3. We have notforecasted any improvement on theproject side, even if that improvement may beoccurring.

Okay, and inthe quarter you booked$25 million in totalcosts for LNG, meaning therevenue plus thewrite-down?

That’s correct.

And you have $27 million incosts left to complete under thenew estimate?

$27 million inrevenue and $27 million incosts, correct.

Shifting to therest of the business,back in theFebruary quarter we got abit of ahead of tank backlog, I amwondering whether this is asimilar situation. How far areyou booking out tank fabrication capacity?

I think that we have got backlog scheduled into calendar2009 right now. As I’ve told you inthe past, typicallyour backlog is for 12 months or less induration, particularly on therepair and maintenance side, it’s generally less than 12 months. But we havegot terminal work and aboveground storage tank work booked out into calendar2009.

Looking atthe predominantlycost-plus and incentive-based nature of your contracts, doyou think you’re going to geta lot of theseterminal phases and pushing down inthe Gulf Coast insmaller packages and thus we might not seethe level ofelephant-size awards and press-releasable awards inthe future, eventhough backlog may grow?

I wouldn’t saythat we are not goingto see largepress-releasable projects come up. I can’t comment on specifics, but I would saythat some of thediscussions we arehaving are veryencouraging about some future opportunities, both interminals as well as terminal expansions. There’s alot of expansions planned for refineries, which they aredividing up portions of theproject, but we arenot seeing any changein thesize of some of theprojects that we have been currently executing, going forward.

Doyou have a stat on howmuch your backlog is supposed to becompleted in FY08?

Not particularly, I mean, we consumed obviously $195 millionof the backlog inthe current quarter,we’ve given you therevenue projection, therange of guidance of $700 million to $750 million. Now that we have changedin thecurrent fiscal year, everything runs through backlog, soyou can kind of do themath.

So, there is not alot of new work running inthere, it’s just basically coming out of theprior quarter backlog?

There will besome new additions to backlog that will beconsumed in thethird and fourth fiscal quarters.

Theprojects that were delayed inQ1, did they getstarted during thequarter? And if so, did they affect themargin at all?

Those projects did start inthe second fiscalquarter, and they were acontributor to themargin.

Finally, theR&M segment margin is something that jumped out atme. Can I assume that you booked some of thesame quick-turn type work that you reported inthe first quarter?

There was some of that, but obviously our second and fourthfiscal quarters are thequarters that we have thelion’s share of our turnaround work due to spring and fall turnaround season, sothose were more as acontributing factor inthe second quarterversus the calloutwork that we experienced inthe first quarter.

Your next question comes from Sajeer Pascal - KeyBanc.

Just to start off with abit of aclarification, theincentive that you have on theLNG project, are thosebuilt into your 11.5% to 13.5% guidance?

They would be, because we have included those revenues inour projections for thecurrent loss we have recorded on theproject. So, in the$27 million of remaining revenue is included theincentive revenues of $7.8 million.

Soif you take those out, your margin range would be11.5% to 12.5% again?

No, I don’t think you look atit that way. You don’ttake them out because we forecast that we aregoing to make thecontractual dates on tanks 1 through 3 sothat’s why they areincluded in revenue. Theonly impact would beif we did not meet thecontractual date and then those incentive revenues would start to erode over aperiod of time.

Comparing your fiscal year ‘07 clientele base, you hadaround six clientsthat contributed 52% of your revenue. If you look out atfiscal year ‘09 and as you have indicated, you have started getting commitmentsfrom your clients. How doyou expect that top 6 clientele base profile to changein terms of thetop half, 50% of your revenues. Doyou still expect that to befairly concentrated?

I would sayno, we don’t expect itto be as concentrated.We are currentlyworking and successfully expanding our customer base. I can’t give you exactpercentages but that’s one of our focuses that we have had, is to expand ourcustomer base and we aresuccessfully accomplishing that.

Would itbe fair to saythat by fiscal year ‘09 we should seea more diversifiedbase?

I would sayyou’ll start to see thediversification impact infiscal ‘08.

Okay, fair enough. Gust going back to theLNG project and I promise to keep itshort, you’ve got enough of questions on that. If I look atgoing back to around August when you talked about theproject and your losses and you talked about thefact that your future outlook was based on current productivity levels and thatobviously turned out to beincorrect, you areassuming the same baseon the productivitylevels right now. What haschanged interms of how you’ve assessed thecushion that you’ve inessence built into that $16 million, versus back inAugust?

What really changed,and as I mentioned, theunforeseen issues that we ran into was during theconstruction of thestructural steel towers which support allthe mechanical pipingand electrical instrumentation. As I mentioned, we encountered some design and fabricationissues which really slowed down theconstruction of these towers which obviously impacted productivity, not only onone tower but as I mentioned, we started to getoverlapping schedules until we had them fully manned. Sothose productivity factors and theexperience that we have seen on tank 1, which again, as I mentioned, tank oneis substantially complete and anticipated to occur on tanks 2 and 3. That’s howwe developed our forecast. Does that answer your question?

I guess it’s difficult to quantify, ina sense, how you have changed on assessing this project sothat you do not seeany cost overruns andmore importantly, I guess, that itgets done on time. I was wondering ifyou would be providingmore regular updates, or beavailable to comment on that going out into April as theproject approaches completion?

Yes. Really, I mean, thesimplest way to explain how we have factored inis we aresubstantially complete on tank 1. We have thedata we need to forecast tank 2 and tank 3.

If you look attank 1, as you’ve said it’s substantially complete. Would that mean that theincentive that you aregoing to realize on tank 1 areessentially in yourhand, in asense?

We still have some work to doto complete. We’ve got insulation and some other work, and our schedule isanticipating the tank beready February 18. So, there is still time between now and then, where someadditional work is to becompleted. But themajor impacts to our cost aresubstantially complete.

Around your specialty business, if you look atfiscal year ‘08, or if you look athow this year is progressing and what you’ve said interms of LNG, potentially you could have $65 million to $70 million inrevenue from the specialtygroup. As you look out to fiscal year ‘09 and you don’t have thatproject in there, doyou feel that you dohave enough demand outside of LNG to actually meet thesame revenue levels, or would you belooking for a slowerbuild into power and other businesses?

First of all, we arebidding work that would beassociated in thespecialty area. We have been and arecurrently bidding work. We have built up apretty good talent base on theLNG project which we plan to shift into some of thenewer specialty work going forward. Obviously, our focus is going to beon improving profitability of that group, given our experience on theLNG project. So theanswer to your question is we arebidding work now, we areperforming some current projects as itrelates to stack liners. Sowe see opportunities.Yes, we are seeinggrowing opportunities inthat area for us.

Your next question comes from Daniel Burke - Johnson Rice.

Mike, when you were talking about opportunities inthe tank business, youmentioned adjacent markets. Were you referring to biofuel and Canada,or are there someother things out there that you arelooking at that youcould give us a littlemore detail on?

I amreferring to biofuels, scrubbers, stack liners, hopper bins, steel products andsteel rigs associated with power and inother markets. When you look atour capabilities on aboveground storage tanks there is alot of capability that we can leverage into other products, and sothat’s what I mean by that comment.

To go back to biofuel and Canada,a quick follow-up oneach. On the bioside, I assume most of theopportunities you areseeing now would be onthe terminalling side,and the need forincremental and additional blend stocks rather then atthe plant level? On Canada,I would be curious to getan update on how you arenavigating the laborsituation there?

Answer to your first question is yes. That’s what we’reseeing on thebiofuels. In terms of Canada,we have, as I said, we’ve set up anoperation up there. We aredoing work in Canadatoday, not on a largescale, and so we havesome experience. But we also have been looking atteaming up with some folks inCanada to worktogether in terms ofbeing able to staff our particular job until we getmore experience. Thelabor market up in Canadais very difficult. We areproceeding cautiously but optimistically, because we seeplenty of opportunities up there. Again, some of our keyclients in theUS arealso potential clients up inCanada andwe’ve already developed arelationship with, so.

My last question, to sort of stick on thelabor topic, as you look ahead to theconclusion of theSabine Pass project, you have already got theTEPCO Port Arthur project lined up on theterminal side. What is your interest inaccumulating more work inthat specific region? Looking over towards theLouisiana Coastas well as the Texas Coast on thecapital side, given labor constraints, doyou feel like you have thecapacity to growbeyond the TEPCOproject as you look into late calendar ‘08?

Yes, we do. I would tell you that we arenot going to get afixed price on labor for sure, given our experience here on theLNG project. But yes, we’ve had some labor challenges on this project but wehave been able to continue to recruit staff to fill our needs. Sosome of the challengesare theskill levels of thecraft is a bigissue for us, and it’s abig issue on theGulf Coastin general. But we arelooking at additionalwork on the Gulf Coast, cost-reimbursable typecontracts. So theanswer to your question is we seeother opportunities to pursue.

I understand they’d becost reimbursable, butdo you think you couldhit some of theincentive targets that you’re pretty comfortably able to hit insome of the otherregions where you aredoing terminaling work?

Yes.

Your next question comes from Rich Wesolowski - Sidoti.

Mike, does theextra money that you aredevoting to completing theSabine Passproject preclude you from buying back stock? If you can remind us how much theboard has authorizedyou to buy?

I’ll answer that, Rich. We arenot constrained from aliquidity standpoint, we have ample liquidity under our revolving line and Ibelieve it’s 1.3 million shares that theboard has authorizedus to repurchase under thecurrent authorization that was given inOctober of 2000.

Is there hope for anamended authorization, Les?

We will continue to look atthe total shareholderreturn and do what wefeel is in thebest economic interest of thecompany.

Gentlemen, there areno further questions inthe queue atthis time. Would you like to make some closing comments?

Sure. I just want to again thank everybody for joining ustoday. We are veryexcited about our outlook and theunderlying performance of our business inthis quarter, excluding theLNG project. We have provided, I think, alot more color on theLNG project to explain sothat we have a goodunderstanding of where theproject is and what theoutlook is. But I think very importantly is we continue to seevery strong demand for our services, we’re looking forward to fiscal ‘09 as theopportunities continue to develop and I want to again thank our folks atMatrix Service who have just done anoutstanding job this past quarter and continue to dooutstanding jobs over thepast year. Sowith that, we’ll sign off. Thanks everyone and we’ll talk to you inQ3.