Good day and thank you for standing by and welcome to the Matrix Service Company's Conference Call to discuss results for the Second Quarter Fiscal 2022. At this time, all participants are on a listen-only mode. After the speakers presentation, there will be a question-and-answer session. [Operator Instruction]. Please be advised that this call is being recorded. [Operator Instruction]. I would now like to hand the conference over to your host today, Kellie Smythe, Senior Director of Investor Relations. You may go ahead.

Thank you, Justin. Good morning. And welcome to Matrix Service Company's Second Quarter of fiscal 2022 earnings call. Participants on today's call will include John Hewitt, president and Chief Executive Officer, and Kevin Cavanah, Vice President and Chief Finance Officer. The presentation materials we will be referring to during the webcast today can be found under Events and Presentations on the Investor Relations section of Matrix Service Company.com. Before we begin, please let me remind you that on today's call, we may make various remarks about future expectations, plans and prospects for Matrix Service Company that constitute forward-looking statements for the purposes 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 30th, 2021 and in subsequent filings made by the company with the SEC. To the extent that we utilize non-GAAP measures, reconciliations will be provided in various press releases, periodic SEC filings, and on our website. I will now turn the call over to John Hewitt, President and CEO of Matrix Service Company's.

Thank you, Kellie, and good morning, everyone, and thank you for joining us. I want to kick off today's call with a thank you to our employees across the business. Whether you're a trades person, an administrative team member on our project or in our office, or a member of our engineering team, we appreciate that the past two years have been challenging for you in both your personal and professional lives. At a company level, these challenges have been a catalyst to make us better. It's caused us to rethink strategies, markets, and structure, and we are changing the business, but one thing that will not change is our values. And while many difficult decisions have had to be made, we will always stay grounded by our values of integrity, caring, and stewardship, while delivering the best with a high level of quality and superior safety. Thanks to all of you, as we build a foundation for success and sustainability. Before I turn the call to Kevin to discuss our second quarter results, I want to briefly highlight how the recovery and our end markets is resulting in an acceleration in awards from our opportunity pipeline. As noted in our earnings release, this was our second consecutive quarter with a book-to-bill of over 1. Through the first half of our fiscal year, we achieved a book-to-bill of 1.4 on awards of $459 million. To put this into perspective, first half awards or more than twice as high as awards in the same period last year and already exceed total awards for the entire fiscal 2021. These awards come as we see further market recovery and returning confidence from our clients, whose infrastructure assets spanned North America and beyond. Positive market dynamics combined with a more focused and total solutions approach by our centralized business development organization is resulting in the rebuilding of our backlog. Remember, however, there is an inherent lag between the time a project is awarded and when it begins to have a material impact on revenue. In some cases, this lag can be upwards of three months depending on the finalization of scopes, contracts, permits, and facility process requirements. Our growing backlog, which now stands at $592 million, will deliver sequential improvements in our quarterly results as we progress through the year and ultimately to profitability in our fourth fiscal quarter. I will discuss our market outlook and the progress we're making to take advantage of the opportunities in front of us shortly, but first, let me hand the call over to Kevin to discuss our segment and consolidated results.

Thanks, John. I will start with consolidated results. Revenue was $162 million for the second quarter, which was in the range of our expectations. Gross margins were 2% in the quarter. The most significant impact to margins was the under-recoveries of construction overhead costs, which negatively impacted gross margins over 500 basis points for all three segments. We expect this to improve as revenue volume increases through the last half of the fiscal year. Gross margins were also impacted by a lower than previously forecasted margin on repair project. Consolidated SG&A expenses were $15.9 million in the three months ended December 31st, 2021, which is the lowest quarterly SG&A in over eight years. We also incurred $700,000 of restructuring costs in the quarter related to additional cost reduction efforts. One other item impacting earnings in the quarter was a $14.2 million non-cash valuation allowance placed on deferred tax assets comprised primarily of federal and state in a wells. Although the majority of these assets do not expire, and the company expects to utilize the assets, when it returns to profitability, the valuation allowance was required by U.S. GAAP and impacted earnings per share by $0.53. Utilizing NOLs in future periods will have a positive impact on earnings by significantly lowering our effective tax rate. As a result, we now expect our effective tax rate to be in the single-digits. For the three months ended December 31st, 2021, we have an adjusted net loss of $10.2 million and adjusted earnings per share of $0.38, including the impact of the tax asset valuation allowance and restructuring costs, the quarterly net loss was $24.9 million and the loss per share was $0.93. Moving to segment results, revenue for the Utility and Power Infrastructure segment was $55 million in the second quarter, producing a…

Thank you, Kevin. As I said earlier, the momentum in our business is growing and we're moving closer to that inflection point I spoke about during our last earnings call. This is a result of the recovery and evolution of our end markets and how we approach those markets as well as internal initiatives that have significantly decreased our cost structure and are expected to create further efficiencies going forward. In prior quarters, we spoke about both delays in capital project spending and how awards were shifting out in time due to the ebbs and flows of the pandemic. With that said, energy markets are stabilizing, demand is rising, and client spending plans have been re-established. Our sentiment is clearly shifted. This shift is evident in our business and our already strong opportunity pipeline that has increased by over 11% since the end of the first quarter due to increased activity across our diverse end markets and how we are approaching those markets. Debating environment is extremely active across all of our segments, and we are adding resources to handle the increase in activity. Looking across our opportunity set, where I'm most excited about is the important role Matrix will play in the transition to clean energy and renewables while maintaining our strong market position in traditional energy markets. And our press release yesterday afternoon, we referenced recent notable awards, including the engineering, fabrication, and construction of seven renewable fuel storage tanks, upgrade projects at two separate refineries to allow processing of renewable diesel, and a capital project for a midstream gas processing plant. These are the types of capital projects entering our opportunity pipeline in greater numbers as compared to this time last year. Many of these projects are captured in our process and industrial facility segment, which has…

And thank you. As a reminder, [Operator Instructions] Q&A roster. Our first question comes from John Franzreb from Sidoti & Company. Your line is now open.

Good morning, everybody. Thanks for taking my questions. I expect to start with the change in the cost structure from $70 million to $80 million. I guess, two questions there. 1. Does that change your break-even point? 2. Does it change your gross margin projections or targets in any particular segment?

John, this is Kevin, I'll take that. First of all, in the gross margin targets, no, I don't think it changes those targets. I think the change just further makes us more capable of meeting those targets and enhances our earnings power. As far as what's the level of revenue we need to break even the level or revenue we need to achieve full recovery of overheads, those targets of $200 million to break even $220 or so to get full recovery at, those are pretty much the same and I think the reason I'm not changing those is just we've seen some, we talked about this last quarter, some of our markets that we bid in right now are pretty competitive. The gross margins down a little bit in some of those, so that is offsetting that decrease costs.

Okay. And that -- the $2.8 million that hit the gross margin in the quarter, can you talk a little bit about that project and all those costs behind you and any chance of recovery?

Without getting into a lot of detail on that project, John, it was a storage -- a thermal storage project. They've had issues in scope development post-award. We've been working through those with the client, has increased our cost and increased our schedule on the project. And so we should be substantially complete by the end of April and believe that we have the cost to complete captured at this point and that anything we're able to do commercially from here on out, I really can't or don't want to comment on.

Okay. And it's hard to believe almost anniversarying the one year announcement of the short three minutes. But from a share value, it's a much different environment. Can you talk a little bit about how that agreements progressed over the past year relative to your expectations and where do you see on a go-forward basis?

Yeah, which we're pursuing projects both with chart and without. We would certainly like everything to happen quicker. But that's -- unfortunately that's not the way things work. And so again, we're looking at projects with them and individually without them. We continue to work on some standardized design concepts and packages with them to be able to offer standardized solutions to different clients. As I said here in this script, we've had a recent small feed award to a client that is intending on building for hydrogen processing stations in -- called North America. We feel pretty good about that opportunity. The client’s ability to finance those. And that project specifically was something that we work together with Chart on to win the feed. And we think we're in a good position to execute on a full project in the near term. So we think sometime in this calendar year, we'll be able to flip that feed study into a full project.

Okay. And one more question I'll get back into queue, which [Indiscernible] and not being more aggressive and share repurchases at this level?

Yeah. John will take that.

Yeah, we had a good quarter on cash but the biggest driver was really related to working capital changes and the timing of billing and -- billings and receipts on some of our capital projects. When we look out to the future, I think there's primary uses of cash. First of all, will be to fund those projects that are in a build-ahead position. Secondly, we've talked about that we expect the revenue volume to increase. Some of that will come from reimbursable type projects and we will need to be in a position to fund that growth. And then finally, we've really decreased our capital spending in the last two plus years. And we're going to have to start increasing that a bit in the future, so that's our focal point right now with our priorities, with our cash.

Okay, Kevin. Thanks. Actually, I'm just going to get back to queue.

And thank you. And our next question comes from Zane Karimi from D.A. Davidson. Your line is now open.

Great. Thank you for that. And just to go off the cash flow a little bit into more detail. But how should we think about the cash flow dynamics as well as the working capital as you guys move forward with this work because you guys are having new ramping revenues and all of that?

So, it varies and it's going to depend upon where the revenue increase comes from. So, if we have increased revenue in periods like when we have increased maintenance activity, that will be reimbursable, that work we're funding upfront and We're funding that for a couple of months. And so that's that's a usage of times, especially in the fall and the spring quarters is usually the period you see that the most. Then we're going to have capital projects. And we try to stay ahead on for my cash perspective on those projects. There are times when you will lead to fund that, especially if the project gets well ahead on cash funding perspective. So as we're thinking about the less the rest of this fiscal year, I think we'll be able to maintain a pretty strong cash balance similar to what we've got right now. I think that the amount of availability under our credit facility will also increase a bit. So that will increase liquidity, I think we had $33 million of [Indiscernible] of credit outstanding at the end of the second quarter. That's down to just under $24 million today. So that increases availability $10 million just in January.

Thank you for all that color and I'm going to change tracks a little bit here, but given the global pricing dynamics around gas, you mentioned how there is a significant uptick in bidding around infrastructure here. Can you talk a little bit more about the facility upgrades and the infrastructure in particular that you are bidding on and the industry's willingness to spend on a carbon footprint minimization.

There's a couple of areas related to LNG. There are a number of utilities, and are looking at peak shaving facilities and storage expansion for natural gas to LNG to use to mostly protect their customers against huge spikes and natural gas prices during severe weather conditions. And so, I think we're seeing a significant amount of that opportunity. We added a storage tank and first quarter for -- related to utilities need to store more gas. There is a number of projects that we're in the either the bidding phase or we have put proposals in for related tax and infrastructure and it's really across the U.S. We're also seeing opportunities for LNG for ship bunkering, for export -- small-scale export into the Caribbean. And then we're seeing opportunities in NGL -related projects both in the U.S. and into Central America, for instance, in propane terminals, ethane terminals. And so really a lot of activity around gas and gas liquids from a storage and storage terminalling side. And then there's been a marked uptick in just midstream gas processing work, where we've got one award. We've announced the several projects in the hopper that we are in proposal stage on probably more than -- more projects than we've probably seen in the last three or four years of pre -pandemic. And that I think one of the drivers there is the inability in some cases on midstream clients to be able to put in new long-haul pipelines, so we have cash flows to upgrade their existing systems, to increase service capacity, and to upgrade their individual facilities to drive down its carbon footprint on how it operates on its pipeline. There's a lot of activity there, we're pretty excited about what we see. In addition to all of this, I think we've talked about it quite a bit, but there are changed approach on business development where we are fundamentally selling across the entire enterprise, across all of our clients as opposed to being a little bit more of a silos seller as well we opened up the opportunity pipeline for us across all these energy markets.

Thank you for that.

Thank you. Our next question comes from Noelle Dilts from Stifel. Your line is now.

Good morning.

Hi, Noelle.

Hi. I was hoping for us to chat a little bit about how we should think about the lag in terms of backlog translating into revenue. Is there -- are there any notable differences across the segments and do you think you could start to see benefit from some of the recent awards by the fourth-quarter? Thanks.

Yeah, I think it’s our expectation that we're going to start to see the awards in the first half of the year to start materially impacting late in the third quarter and dive more heavily into the fourth. Yeah, I think it is important to recognize that that timing of award to revenue is necessarily a shot of adrenaline immediately as it happens. It takes - it does take some time. There may be some permitting issues that got to get finalized, there could be some finalizing of scoping that we're working through with our clients, it could be the initial engineering work that gets done is a lighter percentage of actual revenue in the project before we can start procuring goods and services and start construction to move into the field. So, as we said in our prepared remarks, it can take three -- upwards of three months from the time a project gets booked to the time it gets into a position where it's going to have a material impact on a quarterly revenue. So that's where we see it. And our opportunity pipeline on awards cycle, we think continues to be strong and growing. We expect to see strong awards to continue to happen as we move through the next couple of quarters and throughout the calendar year, so it's going to be building of momentum from awards to revenue that we see moving out in time here. So it won't be quick spike. It's going to be a slow build, but we think we're building a very strong foundation of backlog across the business that is going to support continued revenue growth.

And from segment basis the lag is going to happen more likely on capital projects and we've got those throughout all three projects or all three segments. So it may the same impact on all three of them.

Okay. Thanks for that Cavanah. And then second,-- sorry if I missed this, but could you just discuss how labor cost inflation and some raw material inflation is impacting the business. Are you able to get those higher costs into current beds if you could expand upon that, that'd be great. Thank you.

Probably good news -- the good news, bad news on the down markets we've been working through that -- the inflation spike to materials happened around us. And as in the current bidding environment, we're in that, it's -- we're feeling the pricing levels on that inflation, and we're able to build those for the most part into our bids today. And there are some projects that were delayed that we have bid pre -pandemic that we're rebidding now, and to update pricing for clients. And we're seeing some pretty marked increases in the pricing or materials, steel plate certainly being one of them. And -- but we're for the most part have been able to take care of that in our bidding proposed program here over the last six months. Projects that we already had in backlog, some of those had some material pricing issues that we were able to -- fortunate to be able to deal with most of those with our clients because of the effects of the pandemic. And as it relates to labor, as we -- as our worked volume picks up, we do a very good job I think of sourcing labor across the country and have got a very good reputation with -- like with labor, both on a union and merit shop basis and have not had extreme struggles in attracting labor to our projects. I think that will continue to get more challenging as our work volumes pick up and as -- in general as the markets continue to improve. And that's something that we'll continue to manage.

Great. Thank you.

And thank you. And I am showing no further questions. I would now like to turn the call back over to John Hewitt for closing remarks.

I want to thank everybody for joining us on today's call. And so if you hopefully heard through the call today, then the management team is very upbeat on what we see out into the future for the organization, on return of the opportunity cycle, the awards cycle, the conversion of that into revenue, and the strong improvement into our bottom line as we move out in time here over the next couple of quarters. So again, thank you, everybody for being part of the call, and certainly thanks you again, out to all of our employees and our their hard work, they do every day to make us successful.

Thank you. This concludes today's conference call. Thank you for participating, you may now disconnect.