Good day, ladies and gentlemen, and welcome to the Matrix Service Company Conference Call to discuss Results for the First Quarter of Fiscal 2019. At this time all participants are in a listen only mode. Later we’ll conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the call to today's host, Ms. Kellie Smythe, Senior Director of Investor Relations. Ma'am, you may begin.

Thank you. Good morning, and welcome to Matrix Service Company's first quarter earnings call. Participants on today's call will include John Hewitt, President and Chief Executive Officer and Kevin Cavanah, Vice President and Chief Financial Officer. The presentation materials we will be using during the webcast today can also be found on the Investor Relations section of the Matrix Service Company Web site. Before we begin, please let me remind you that on today's call, the company 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. Actual results may differ materially from those indicated by these forward-looking statements as a result of various factors, including those discussed in our annual report on Form 10-K for our fiscal year ended June 30, 2018, 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 Web site. I will now turn the call over to John Hewitt, President and CEO of Matrix Service Company.

Thank you, Kellie, and good morning, everyone, and thank you for joining us. In this morning's safety moment, I'd like to remind our employees of a few things as we work through fiscal 2019. As you know, in fiscal 2018, for the second consecutive year, we issued a company-record safety performance with a total recordable incident rate of 0.49. In this fiscal year, we are currently on pace for continued improvement along our journey to 0 safety incidents. With an increase in current projects, a strong backlog and a robust opportunity pipeline, our workload has and will continue to increase. We have greater numbers of employees on our job sites and a greater number of hours being worked. It is imperative that we stay mindful of the fact that as our workload increases, so do the risks. As we move through what promises to be a very busy year and beyond, I ask that you lead by example. Put safety at the forefront of everything you do. Be accountable. Follow all policies and procedures in planning and executing work and come together to address and correct any issues that arise. Above all, stay focused. Don't allow yourself or others to be put in harm's way or to become complacent or distracted from the task at hand. Before we review our first quarter results, please join me in thanking retiring Chairman of the Board, Tom Maxwell, for his many years of leadership. Tom was first elected as a Director of the company in 2003 and retired as our Chairman on October 30, 2018. In his 15 years of service, Tom has served our company with great distinction, has helped guide Matrix through a number of noteworthy acquisitions and growth initiatives as well as challenging business issues and end-market cycles. His senior…

Thank you, John. I want to start with the significant takeaways from our first quarter. First, operating results this quarter are within the range of our expectations from both the top line and earnings perspective. As a result, we are maintaining our fiscal 2019 revenue and EPS guidance. Second, the revenue ramp that began in the fourth quarter of last year continued in this first quarter. Our quarterly revenue has increased over the last three quarters from a low of $246 million in the third quarter of fiscal 2018 to $293 million in the fourth quarter and now to $319 million in this quarter. This trend is the result of the increased backlog, which is up more than 50% from this time last year and overall improved market conditions. We expect the revenue trend to continue as we move through fiscal 2019. Third, the gross margin of 7.4% we produced in the first quarter is not indicative of the normal margin you should expect from us. This quarter's margin was impacted by the work-off of lower-margin work bid in a highly competitive environment in prior periods as well as lower than previously forecasted margins on some of those projects. As we continue to work off the lower-margin work and ramp up the revenue volume from the newer backlog, our gross margin should increase as we move through fiscal 2019. Lastly, our book-to-bill was 0.7. Backlog remains elevated at over $1.1 billion as compared to last year's backlog of $729 million. This 52% increase in backlog is the result of a strong award cycle in the back half of fiscal 2018. While our project intake was not as strong this quarter, it did include strategically significant awards such as projects supporting the gas value chain. We have also talked in the…

[Operator Instructions] And our first question comes from the line of Tahira Afzal from KeyBanc. You may begin.

So as you had telegraphed earlier on, John, seems like a back-end loaded year. Just so that we don't get ahead of our skis, how back-end loaded should we think? If I look at my estimates right now based on all your commentary, it seems like we could be getting 65% to even 70% of -- the midpoint of EPS in the back half. So what -- would that be the right way to think about it?

Yes. Tahira, I'll take that question. I think that's right. I think we would expect the second quarter to be better than this first quarter. We're expecting continued growth in revenue as those projects and backlog ramp. But I think that will really peak in the last half of the year. So we see top line, gross margins and EPS all ramping through the year.

Got it, Kevin. And then just based on that and even just taking your midpoint, it seems you could be exiting the year with an earnings power of $0.40, even $0.50. Is that something based on your commentary it seems like you can maintain going forward?

It's -- yes. I think that your math is correct. And with these markets -- the big markets that we have right now, we feel good about the future. I mean, obviously, we're not giving any guidance on fiscal 2020, but there's no reason at this point to think that, that's a year that's going to retrench.

And John, I don't know if I'm reading too much to your commentary. You're all balance, and you sounded slightly more upbeat on maybe perhaps the LNG side. Some of your competitors are distracted right now. Is this an opportunity for you to grab shares?

I think saying some of our competitors are distracted right now is probably a good qualification on your part. So yes, I think that, that's creating opportunities for us to gain market share. I think some of the awards that we've seen over this last six months related to specialty vessels, whether those are spheres or some of the ethane tanks, I think, is partially related to that distraction by some of our competitors as well as just overall strength in the market.

And any sort of interest in pipe fab or tanks business? The tanks business is pretty awesome, but obviously, overseas it might be a little too much for you. We would love some thoughts.

Yes. I think our thoughts around the divestiture of the CB&I assets are probably in a couple of areas. First of all, our thoughts go to the employees. So they've been through a lot of instability over the last couple of years. And I'm sure that's something that they've got to be looking forward to as having a stable place, a stable home for their business that they've spent a lot of time working to build. So our thoughts go to that. Two is we talked about what that means from a market disruption to us and how that could possibly impact our business. And so we have to be thoughtful on how we would take advantage of that. And then three, honestly, we don't have really enough information, what it is in the assets of CB&I and of the tank business and in the pipe business. Certainly, we will want to investigate and understand what it is. But as of today, we have no definitive plans one way or another.

[Operator Instructions] Our next question comes from the line of John Franzreb from Sidoti & Company. You may begin.

I guess, I'd like to start with the electrical business. The revenue profile in the quarter was a lot lower than I expected. But the gross margin profile was surprisingly strong, at least compared to the two prior quarters. Can you talk about what's going on in that business?

Yes. So from a margin profile, I'll start with that and then I'll turn it over to John. But from a margin profile, the biggest driver to the revenue decline is our exit from doing EPC power generation work. While a lot of those assets that were devoted to that we're able to shift to the other projects that are maybe in other segments. So it's not a situation where we have a bunch of stranded overhead as a result of that decline in revenue. And while we did have some under-recovery because of the low revenue, it kept us from having a huge under-recovery. And that would have had a bigger impact on the margins in the segment. So the margin performance in the mid-7s was okay for that segment.

Yes. And we're seeing increased activity in our core markets bidding activity in substations and our traditional related high-voltage electrical services. And so we feel good about that. And really, that really kind of really start to strengthen during the Q1. So some of the backlog and awards this quarter are related in the electrical segment, and we're expecting that strength and award activity to continue this year. And we'll start to see some of that start to flow to the business as we move into future quarters. And we've just kind of kicked off a couple of electrical package jobs that were going on some power generation facilities in the Northeast. And then our expansion west of the Allegheny Mountains per se is that we're actively bidding the work in the Midwest and down into Oklahoma and Texas with a couple of public utilities. And so that process, we're pretty happy about. That process is going, and the opportunities, those moves we're starting to forecast. But they have not hit the revenue line yet. We would expect the whole to start building into the revenues in the next couple of quarters.

So where did you reallocate those assets? And if you get those awards on your geographic expansion program, we have to bring it back -- do you have to -- what's your thoughts about it, addressing...

As Kevin had mentioned, some of those people who were working on some of our power generation work are now -- some of them are working in industrial, some are working in storage, so project management, superintendents, cost engineers, that's a very transferable skill set throughout the services that we provide. So they've moved from one project to another. So for instance, we -- last year, we had notified we've been awarded a big galvanizing line, steel job for a client in the Midwest. And as that job ramped up and the Napanee job started to close, a lot of those people went from that job to the next. And that's pretty common in our business. I mean our -- outside of some specialties that we have, but a lot of our skill sets are transferable between different segments.

That's good to hear. And John, you seem like you're suggesting that the spring turnaround season would be better than expected in Oil Gas & Chemical. Can you just talk a little bit about that and your confidence levels?

Yes. I think our teams are feeling pretty confident about that. We're already engaged with a number of clients, especially, our core clients that are doing planning and budgeting for those turnarounds. And those will convert into projects probably after the first of the year as they start to gear up to do those turnarounds. But based on what we're seeing, the expectation is the scopes will be a little bit larger than what we've had in the past. And the opportunity for scope growth, once we get into the actual turnaround, is probably higher. That opportunity is higher than it has been in the last couple of turnaround seasons.

And moving into Industrial. I guess, a couple of questions. What are your thoughts about -- just kind of round trip a little bit in some of the -- a lot of the commodities market? So how does that impact you, say, in copper? Also, what are your thoughts about spending in steel? And actually, I have a more granular follow-up when you're done with those.

Yes. So in copper, the price was above $3 a pound for a little while earlier this calendar year. And that was generating a lot of bidding activity. I think the copper miners were feeling pretty good about their markets. That since fallen off into the -- I haven't looked recently. I think it's around $2.75, $2.80. There's still heavy bidding activity and proposal activity. And so we're still cautiously optimistic that, that market is going to continue to improve for us. Our teams really in that, that would service that market are really busy right now with some other segment work, again, the transfer of assets. But we expect probably over the next 12 months that, that market will get stronger. The demand for copper, we think, long term on a global basis will continue to be there as the economies across the globe continue to produce. So it's a place we still want to be, and so we have -- we're optimistic about the long-term benefits there. And in iron and steel, I mean, obviously, the tariffs have been important to that, to keep steel prices up. The demand for steel with things that are going on in other segments of the economy is strong. And so we see a fairly long-term opportunity here in that business for us to continue to generate the revenues. We've worked with a number of clients to start up some of their shuttered pieces of their facilities. Some of that was what helped drive revenues in the first quarter here. We're bidding some larger projects with a couple of the integrated iron and steel producers for different pieces of their facilities where they're either adding capacity or upgrading their capacity that they have. And so we feel pretty bullish about our position there. And we've got a very strong position -- grand position with the integrated iron and steel producers.

And one last question. You talked about material handling as a subset of the Industrial segment. Are you just limited to the aggregates side of the material handling? Or do you do other aspects of it?

So we don't do -- and one of our engineers may come -- run down here after this call and correct me, but we don't do pneumatic-related material handling. But yes, it's more bulk material handling with conveyor-type applications.

Thank you. [Operator Instructions] And I'm showing no further questions at this time. I'd like to turn the call back to John Hewitt for closing remarks.

Thank you, everybody, for joining our call today. And I wish everybody a happy holiday season and -- a happy and safe holiday season. And look forward to speaking with all of you in the near future. Thank you.

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