Good day, ladies and gentlemen, and welcome to the Matrix Service Company Conference Call to discuss results for the First Quarter Ended September 30th. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time [Operator Instructions]. I would now like to introduce your host for today’s conference, Kevin Cavanah, Chief Financial Officer. You may begin.

Thank you. I would now like to take a moment to read the following. Various remarks that the Company may make about future expectations, plans and prospects, for Matrix Service Company, constitute forward-looking statements, for purposes of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements, as a result 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. To the extent the Company utilizes non-GAAP measures, reconciliations will be provided in various press releases and on the Company’s We bsite. I will now turn the call over to John Hewitt.

Thank you, Kevin. Good morning everyone and thank you for joining us. As always, I would like to start by talking about safety. Each fiscal year, Matrix Service Company celebrated safety performance by presenting our Company's own safety excellence awards through two operating units that exemplify our behaviour based safety culture. This year on highest award, the Board of Directors Safety Award, has been presented to the turnaround group within Matrix Service led by Glenn Skiles. Inherence is in group's work with the management of continuous rotation of people, projects and clients. Their work is highly complex, typically occurs within compliance basis and often requires a completion of task while units are still in operation. Because of their mindset and attitude towards safety excellence and their results have been outstanding, and have set them apart as a positive Metrix's ambassador with many clients. Among the many accomplishments was zero recordable incidents in fiscal 2016. This group is well respected by the industry and clients as evidenced by multiple meteoroids safety awards. Our second highest award, the CEO safety award, has been presented through an industrial operating unit from Matrix North America Construction in Canada, operating under the leadership of Bryan Woodhous. Under Brian's leadership, this team has made safety second-nature in extreme working conditions. Their work takes place in integrated steel mills, which are among the harsh of environments. Among other accomplishments, this team also achieved zero recordable incidents for fiscal 2016. On behalf of Matrix Service Company, I want to personally congratulate both teams for their exceptional performance. Before we move on, I have one more thought about safety I want to share. We’re coming into winter holiday season, a joyous time of the year, but also time when it's easy to get distracted. In fact, from a safety…

Thank you. As John indicated, we’re pleased with our first quarter results, which were in line with our expectations and provided good start for fiscal 2017. Consolidated revenue for the quarter was up 7% of $342 million compared to $319 million for the same period last year. The year-over-year increase was driven by work on energy transfers Dakota Access Pipeline terminals and TransCanada’s Napanee Generating Station, which continue to underpin the Storage Solutions and Electrical Infrastructure segments. Consolidated gross profit was $32.3 million compared to $34.6 million in the prior year quarter. Consolidated gross margins were 9.4% and 10.8% for the same periods respectively. The decline in gross profit and margins was primary the result of under-absorption issues in our Oil Gas & Chemicals and Industrial segments in the quarter, as well as an unsettled change orders in the Electrical segment, which are being recognized at zero margin. Consolidated SG&A expenses decrease to $18 million for the quarter compared to $19.5 million in the same period last year. This change is primarily due to a reduction in the IT cost charged to the administrating portion of the business. In addition to this reduction, the Company contained SG&A spending with no significant variances is in the quarter when compared to last year. I think it's important to note that Matrix continue to do an excellent job controlling SG&A expenses as we’ve grown the business, management has also made it a priority during this downturn to look through the cycle and work hard to maintaining our talents, resources and capacity. Doing so, positions us for the inevitable rebound in some of key end-markets and protects revenue and margin opportunities as the critical infrastructure work we perform returns. Our ability to do so in large part is a result of our diversification and…

Thank you, Kevin. Before we open the call up for questions, as you consider Matrix has an investment opportunity, there are few things I want you to remember. First, while there are lot of contractors out there who may perform the same type of work as we do, companies chose Matrix because of our service, our culture, our performance, all of which are defined by our people. Next, as an organization, our people who work hard to strategically diversify our business across the energy, power, and industrial markets, doing so creates greater long-term value and helps protect the value when challenging market conditions occur. And lastly, because of our diversification and the strength of our foundation we have built, we are well positioned to take advantage of the massive infrastructure investments that we made across the markets we serve. As we do, our financial and organizational positioning also allows us to continue our strategic growth initiatives. I’d again like to congratulate our two safety excellence award winners, as well as all of our employees for dedication and commitment to our core values and to delivering exceptional service to our customers. Finally, Matrix Service Company and its subsidiaries were just recently certified as a great work place by the organization, Great Place to Work. This is the organization that Fortune lies on for its 100 best companies to work for, and other best workplace rankings. We are extremely proud of this achievement and the differentiation that this creates for us in talent recruitment and retention. I want to personally congratulate all of our employees on the significant achievement. And with that, I’ll open the call up for questions.

Thank you [Operator Instruction]. And our first question comes from the line of Matt Duncan from Stephens Inc. Your line is open.

Hey, good morning guys. This is Will on the call for Matt.

Good morning, Will.

Good morning. So backlog trended down again this quarter, and your key storage segment is at the lowest backlog level you’ve had in quarter while. When do you think total backlog in bottom and start moving back up, you had a positive commentary on the outlook? And can you talk a little more about the North American storage demand outlook?

So you’ve got about six questions in there, I think, Will. We’ll answer through that. So I think we’re in conversations earlier in the year, we talked about our view was our backlog was going to start to balance-out towards the end of this calendar year, and perhaps into the first quarter of the next calendar year. Based on what we’re seeing in the market besides of the projects that we’re looking and specifically in storage, we think that that bottoming is going to happen sometime over the next three to six months. And so it's just kind of be whether the timing of the awards or some of the projects that we have outstanding with in client’s hands right now that they are going to get their Board approvals to continue. So there is a lot of work being contemplated out there, a lot of what we’re looking at, work with our clients, we feel good about them getting permitted. We feel good about them reaching financial close. And so it's just going get back to timing of those awards and our ability to win those. So that I think this is based on -- so what’s the storage remain out there. I mean this has been robust as it was three or four years ago, but it's still pretty strong environment. And we’re, as you can see, with the numbers that we mentioned in my prepared notes, a significant amount of bidding activity for us out there on the -- not just on individual tanks but really on full-turnkey terminal opportunities. Where we’re seeing a lot of demand right now is in the small to mid-scale LNG and NGL type facilities, both for storage and for terminals, both through the use in export and in transportation fuels. Our engineering groups are very, very full right now we’re doing sheet work studies. Our construction teams are busy bidding work with a lot of projects out there and clients hence now wait for decisions. So that -- we will see that market cooling down in all near-term. We’ve been working with several LNG export customers. As again as we said in our prepared remarks, if you think about 2021, 2022 demand curve increase, which I would say the market generally believes is going to happen when the global supply go out of LNG is going to go the other way. You got four or maybe five years of pricing, permitting, scope development, feed work to get one of those bid facilities put in place. And so we’re pretty active with variety of clients are now and some partners on the storage demand for those export terminals.

So, Will, if you look at a little further, Will, so Oil Gas & Chemical this quarter bolstered by awards that we previously announced had an extremely good award quarter, but it would have been positive even without that larger award. So that’s a good sign for Oil Gas & Chemical. The Electrical Infrastructure segment had a pretty good book-to-bill too it was over 0.8 and considering we’re working off the Napanee project that’s good. And then with the 0.8 billion [ph] of bids outstanding on storage, and John just went into those, you’ve got some positive indicators there. So, realize the consolidated is down, but there is, yet particularly the little into it by segment or really evaluated.

And are you still expecting substantial completion on Dakota Access by the end of 2016, and Napanee by mid-2018?

So on Dakota Access, our substantial completion is, from a contractual standpoint, is not until mid ’18. But mechanical completion, which is really like headquarter contraction phase for us is in -- before the end of the year. So the nuance there is there was going to be -- there was always plan to be some landscaping being pending some miscellaneous items that we’re going to drag on to the first-half of 2017. But you used the word on non-contractually substantially we’re going -- majority of our work that will be done by the end of this calendar year. And on Napanee, again, on mechanical completion date is in late calendar ’17 or early 2018.

And what caused the unsubtle change of orders and how big an impact on your electrical gross margin was it? Is that, I mean, on any other project updates with Napanee would be great too?

So that there is commercial changes and some issues that we’ve got to settled yet, I mean Kevin can comment on the timing standard there and the impact on the margins. But it isn’t something we really want to get in all of detail with, we are in active discussions with our clients related to that those issues and that’s -- conversation is positive, but it is not wrapped up yet. So, as soon as it does then we’ll have a better, maybe Kevin will give you better answer.

So, Will, the these kind of change orders, they fall under accounting guidance that says that if you got unapproved guidance like that, you cannot recognize any margin on any cost incurred related to those items until you got assigned change order or amendment to your agreement. So it kind of ties our hands on that. And so progress is continuing on the project and we do think we’re going to get a resolution on this. But for the quarter, we had to follow the gap on the accounting for the projects. And as far as these specific amounts since we’re in that, the active discussions with our client, we’re not going to get into numbers on the change order, that would be detrimental to our discussions, I think.

Thank you. And our next question comes from the line of John Roberts [ph] from D. A. Davidson. Your line is open.

Good morning. It’s John Rogers. Couple of things, first of all, just in terms of the Oil Gas & Chemicals business, the improvement in bookings that you’ve already seen there. Is that enough, I mean do you have enough visibility that you can get that segment back to profitability this year?

Yes, I think so. I think we’re going to see improvement in that throughout the next couple of quarters. And I think we’ve got very good -- good news bad news, we’ve got a very good visibility, I think with our key refinery clients. And so that visibility -- and that visibility has afforded us by a lot of the planning and upfront work that we do with our clients in preparation for the turnaround work, and our maintenance activity work at our BP Cherry Point facility, is anticipated to be very strong through the balance of this year. There is actually, including some capital projects that we are working with BP on, have not been awarded yet and start dates are moving around a little bit. But a lot of the other refiners are still holding back or delaying some of the turnarounds or minimizing the amount of workers that they are going to undertake in the next turnaround season. So our visibility into the back-half or by the year would tell us that we may -- can expect little bit more of the same that we saw in the turnaround season here this fall. There is work you said pushed out, so we’re actively engaged on a lot of planning out into our fiscal '18 and '19 and beyond. And there is a lot work that’s getting built-up. And so, I think our visibility is pretty good. And I think we’re going to understand where it is. We do have some capital work and some opportunities in various pieces of that business. But I think the turnaround part is going to still be a little bit of rough ride here.

Yes, just to further expand. I would not expect the revenue volume to be as low as it was in the first quarter. I think, as John said, we’re going to see it improve as we go throughout the year. And I think our comments related to fiscal ’18 are where we see steady getting closer to back to normal from the decline we’ve had the last two years.

And then I guess John you mentioned the bid activity in the storage market with $1.8 billion of bids outstanding. How does that compare to a year ago? Just put it in this perspective.

I would say stronger than a year ago. What we’re seeing is more -- a higher level of activity in EPC related projects where it’s just similar to tanks and terminals, both in crude and in all of these specialty vessels and NGLs and small-scale and LNG type facilities. And so, I would say, overall, it's stronger, probably in the tank market itself, individual tanks, is probably where there is probably most of the softness. But in a lot of storage and bigger facilities where people are looking at more export opportunities for a variety of liquid products, or trying to tie in to some hip repairs -- some of the new pipeline activity and we’re seeing quite a bit of activity there.

And then just finally in terms of your power plant project, I’ve conceived your comments, and I realized either you don’t want to get into too much specifics. But I guess I just want to understand how much risk is there that a substantial portion of that revenue could be recognized at breakeven this year, and on the work yet to come before you get it resolved with customer?

So we’re having positive discussions with them on some of these outstanding issues. We’re not trying to jump across for maintaining here, it’s not -- we’re not usually apart. And so, we’re positive that we’re going to come to a resolution and then I’ll be able to move on.

And are there other projects out there for you? I mean, I think in the last year where you’ve talked potentially doing in sub-contractor on-work and pursuing opportunities. I mean, just let me get a sense of where that market is?

Yes, absolutely. I mean, we had one project that we had bid in the Northeast that we felt pretty good about on the centerline equipment direction and the piping, we were not awarded that, but there is other pieces of that project where we feel so we’ve got a very good position on. And so we’re anticipating some news on that within the next quarter or two. And there are other projects in the Northeast area that we are actively bidding or working with other EPC contractors for pieces of that plant and that installation. So, we’re again we’re -- lot of activity there. We’re trying to pick the right ones that we think they either, we get the best chance of winning and be successful on, and who the right client is and who the right potential partners are. And so it's -- we’re pretty happy with our positioning there, and certainly would expect to add more work in that arena here over the fiscal year.

Thank you. And our next question comes from line of Matt Tucker of KeyBanc Capital Markets. Your line is open.

I wanted to just follow-up on the change order issue. I’m just trying to understand, if the change orders are ultimately not approved. Would there be a negative impact to margins in the future? And conversely, if they are approved, would that enhance the margins in the future?

So, whenever we’ve got unimproved change orders some of them will be for work performed that started some -- it's for work that’s not started. And it could be an elective addition to a project and if the change order is not performed or if that change order is not approved then that work never gets done. It doesn’t have any impact to the margin on the projects. Now, for these where we’ve got change orders from projects for work that’s being performed now. So what you do, from an accounting standpoint, you recognize revenue to the extent of cost incurred, assuming that you think that’s what you are going to collect. And so, you request to lease that amount. So our expectation would be that we would reflect that the claim amounts or the change order amount. If for some reason it's doesn’t get approved, then we would have to pursue other avenues to get collection on those moneys.

And then at store solutions, you commented on some of that activity, the increase in activity there has been largely driven by Petrochemical and LNG opportunities. I am curious why do you think the activity is picking up now? Is this related to some of these large projects that are already under construction? Or are these unrelated new capital projects? If you could just comment a little bit more on that.

I think it's probably a bunch of different drivers. You got a cheap natural gas, continued even though prices have gone up a little bit. I mean that’s still a driver, I suppose. And people trying to find where to put their capital dollars and where they can get best return. Again, you’ve got some strong pipelining activity that’s in the planning stages. We’re looking at projects that are on Gulf Coast to increase the size of storage facilities for exporting of crude and refined products, significant amount of activity, as I said, in this small to mid scale LNG and NGL type of projects. So, I think it's just economics of where people are seeing their best chance and then to get a return.

And then on the JAX LNG Award, any sense you can give us for the size of that contract. And was that included in the first quarter backlog, or will that be booked in the second quarter?

So it was not included in the first quarter backlog. And our -- you know our press release, obviously, didn’t have any numbers in, and that’s for our clients wishes. So we don’t have authority for them to talk about that.

And then finally on the Oil Gas & Chemical outlook, the turnaround activity, and one of your competitors indicated they saw pretty sharp uptick in September and October. I’m curious if you experienced that as well. And then as you look out to calendar 2017, and it sounds like you’re feeling like things should be getting better. I guess how confident are you that work doesn’t continue to get deferred? Or do we still have to just wait and see at this point?

Yes, couple of thoughts here. One is you got to be careful, I think, when different contractors are telling you different things about how busy they are. Because in many cases, each of us have our own strong relationships with different clients and in different plans and geographies, so while you may have -- you might have a shell on the Gulf Coast, the planning of some strong maintenance activity and their preferred contractor might be -- contract asks as opposed to contractor why, it could appear that that -- the contract, when contractors talks about strong turnaround environment that he’s been talking about at industry at large. And so I think you’ve got to be -- you really need to look at the, all of what take -- pulling of all the contractors out there and what they’re saying in the industry. Two is that, again, we have and many of the clients we do business with, we have people in those facilities that are helping them with planning for their next turnaround and maintenance cycles. The idea is there is some visibility out into the future. And while we think for us the second half of the year will be such stronger than this first year of the year, the real big workload is coming in our fiscal 2018 and 2019, that’s where we’re really seeing the point of where the economics get better and that the clients, so they’re not going to be able to push out some of those maintenance for any longer.

Thank you. And our next question comes from the line of Dan Mannes from Avondale Partners. Your line is open.

A couple of quick follow-ups here, first, on the Napanee job. Can you talk about how you’re attracting with original plan? Are you on target as it relates to time of completion, or any major deviation there?

No, so I think there is -- there has been some -- it would be appropriate to just talk about that. We’ve had some changes in the project that has affected the schedule. But I don’t want to make statements in the public environment about where that -- where end date is, specifically, given that where our clients also a public company and they’ve got certain things that they -- commitments they have in their prior markets up in Canada. Right now, the project continues to be on track and then they meet their commitments.

And then as it relates to new projects on the power gen side, last quarter, I think you’d said by year-end. It sounds like just given the one closer project you didn’t look like you locked up down. Is year-end still reasonable or maybe you just need a little bit more time to lock-up the next project?

I think we’re still somewhere to next two quarters is when we would expect some additional power gen awards. I wouldn’t expect that it's going to be a full project. Again, it will be a piece of either of the electrical scope of work, the centerline direction, mechanical work, that type of thing. I don’t expect a pull away kind of the pull of project where that EPC contracts are in the next few quarters. But that’s not really where it has been anyway.

So with that in mind, the one that you would hope to get you didn’t, was because of the firm you are partnering with. Did they not win, or was the situation where they chose to go at a different kind of sub-contractor, or is the project [multiple speakers].

This was a direct bid to owner. And the person that they contracted with provided them a proposal that they apparently felt it was more compelling.

Just one or two more quick ones, as it relates to some of the news we’ve seen just more timely today some of the earthquakes in Cushing. I know it's pretty mature. But does that change perhaps any opportunity set that you may have or like to build out re-enforcement, maintenance repair, anything that could provide for you?

Yes, I mean, that’s always possible. We have consistently, since this is started, this kind of uptake in seismic activity in the Cushing region over the past 18 months, we have provided our expertise to our clients and the community on the tanks and the facilities that we constructed out there, where we see the risks based on the seismic loadings. And so, we’ll continue to do that. Continue to provide that support. And we don’t want to be considered somebody who is going to pray on the unfortunate -- those would implement some kind of natural disaster. But certainly I think as this seismic activity continues at the rate that it's been happening, it may cause some clients to go back and look at their facilities, and do some different thing with hardening. But again, right now, all we’re doing is we’re providing support in our engineering expertise to the community and to the end of the clients that we’ve done work with out there, and it's up to them to make those decisions.

I am not trying to make you sound like a complete opportunity. But you do obviously have a lot of opportunity in that area. And I just want to close out just on the cash and on the buy back. You certainly seen from quarter-to-quarter working capital swing, this seems a little larger than normal. I don’t know if you can talk at all about if there is something disproportionate about this one, number one; and then number two, if that did or didn’t have any impact on maybe buyback activity, because we didn’t see any repurchases this quarter?

Yes. So, no, I think we’ve talked about that we could see swings in working capital, $50 million in a couple of month period. And that’s exactly what happened this quarter. And when we watch our working capital investment pretty close and make sure that the quality of that investment isn’t deteriorating. And so we don’t see any deterioration. It's just a matter of cash flows and the timing of those. And that’s one thing we do to keep a one reason why we keep such a strong liquidity position. And, yes, it did factor in. We didn’t elect to do any stock buyback this quarter, because one of the reasons was because the investment was so high this quarter.

Does any of that weight to the unapproved change orders, or is that a pretty minor piece of it?

It's a piece of it, but it's not all of it. There is, I mean, you got to remember, you saw the high revenues in storage driven by the Dakota Access job. And so there is no -- we’ve got head our crews and have sub-contractors, are working and nearly six days a week, some cases two shifts. So, there is a lot of money flowing through that project. And it’s just -- it takes month-to-month, take some big working capital draws to keep that shift moving for us meet our end date and commitments with our clients. So -- and to keep our sub-contractors paid in between those payments. So, it's just been a big drop. But it’s not that -- nothing out of the ordinary. It's as just Kevin said, from time-to-time, those things happen, and it's of course one of those times.

And the biggest usage of working capital during the quarter was actually storage solutions, which had an excellent quarter from the volume perspective and a gross margin perspective.

Thank you [Operator Instructions]. We have a follow-up question from the line of Matt Duncan of Stephens Inc. Your line is open.

So I’ve got a lot of moving parts with the business right now, as we’ve gone through here. Any you helped by outlining your longer term more normalized gross margin expectations by segment. But as we look from a fiscal 2017 standpoint, can you help us get more dialled-in on the revenue guidance, and how that shapes up by segment. And how you think the more near-term gross margins look in each of those segments versus more of your longer term, more normalized levels are?

So I think if you look at this, the storage revenues in the first quarter were exceptional, almost $200 million. I think you’re going to see those start to trend down a little bit. And you’re going to see Oil Gas & Chemical trend up, and you’re going to see the electrical trend up a little bit. We’re still, just like we were a quarter ago, we’re still being really conservative on our forecast in industrial segment. And we’ve maintained our guidance on revenues, as well as EPS. So that kind of gives you an idea of total size. From a quarter-to-quarter, we don’t give quarterly guidance. But I don’t see huge fluctuations on a quarterly basis, on a consolidated level.

Do you think that industrial segment can crack the $100 million threshold this year?

There is couple of projects out there that we’re actively pursuing. And so, I think, the fact that they’re depend on the timing of those awards.

And last one from me, you touched on acquisitions in your commentary. But just quick update on the pipeline, and the services you’re focusing on adding or complementing with your existing portfolio would be great?

Yes, so two things continue to do the same; one, is we want to be able to expand our electrical footprint, both on a high voltage T&D sub-station standpoint, as well as industrial electrical services. So, that’s a focus area for us. And then two is to provide more engineering capability, and what I mean by that is not to sell engineering services, but to be ourselves in a position like we are now in cryogenics to provide more feed study work, more process work that helps us create EPC and EPC on projects. And so that’s also a key area for us to try and add some more of those technical skills-sets. We also mentioned on a call that we’re seeing more draw into Caribbean and potential, we think there is going to be in Mexico as it privatizes, Latin America. So our ability to have a little more skill-sets and relationships in to support those markets is they continue to get stronger, will also will be important.

Thank you [Operator Instruction]. At this time, I’m showing no further questions in the queue.

Okay. Thanks everybody for your attention on the call. We appreciate it. And we will talk to you at the end of the second quarter. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. And you may now disconnect. Everyone, have a great day.