Good day, and thank you for standing by. Welcome to the Matrix Service Company Conference Call to discuss Results for the Fourth Quarter Fiscal 2023. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Kellie Smythe, Senior Director of Investor Relations.

Good morning and welcome to Matrix Service Company’s fourth quarter fiscal 2023 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 referring to during the webcast today can be found under Events and Presentations on the Investor Relations section of matrixservicecompany.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 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 subsequent filings made by the company with the SEC. To the extent, we utilized non-GAAP measures, reconciliations will be provided in various press releases, periodic SEC filings and on our website. Before I turn the call over to John Hewitt, I’d like to share information about several upcoming investor conferences and corporate access opportunities. We will be holding one-on-one meetings at the D .A. Davidson Annual Diversified Industrial and Services Conference, which will be held in Nashville, September 21st and 22nd. We will have a virtual Non-Deal Roadshow hosted by Rose & Company in October. On November 14th is the Matrix Service Company Virtual Annual Stockholder Meeting. And finally, we will present and hold one-on-one meetings at the Sidoti Micro-CAP Virtual Conference planned for November 15th and 16th. If you would like additional information on any of these events, I invite you to contact us through the Matrix Service Company Investor Relations website. I will now turn the call over to John.

Thank you, Kelly, and good morning, everyone. We've been working hard over the past few years to set the business up for growth, group performance, and long-term success. As we begin to see the results of this work, I want to remind everyone of our duty to maintain a safe work environment. With more project volume comes a larger number of new field employees, more employee hours, an expanded geographic footprint of operations, and an increased occurrence of at-risk activities. This will demand even more attention by the 0:01:35.4 ,p3 bank's leadership. Recently, the construction industry overall has seen a rise in job site incidents and increased challenges to achieve the kind of safety performance it saw before and even during the pandemic. Matrix and our industry peers saw record safety performance during the height of the pandemic as the focus on health protocols were strictly enforced to prevent the spread of the disease. Everyone became extra vigilant about everything, including safety processes and procedures, which resulted in significantly reduced incidents and injuries. As the industry returns to a more normalized work environment, training and planning are critical as is situation awareness, culture, and most of all individual decisions. At Matrix, every employee has a right to stop work if their environment or activity feels unsafe. That is not only a right, but a duty we have to ourselves and others. Equally important is the experience, expectations, and accountability that leadership can provide at every level. Safety is our number one core value and I challenge every employee to be accountable to themselves and each other on that value proposition. Each of us, our company, and our industry must do better to keep everyone safe every day. Turning to the quarter. Hopefully our listeners today saw the press release we…

Thanks, John. Overall, we are pleased with the trends we are seeing in the business and the improving results during the fourth quarter of fiscal 2023. We have talked previously about the issues impacting the business the past few years. Revenue volume was low as a result of limited project award activity. Two years ago, our backlog dipped below $500 million, and our quarterly revenue decreased to $160 million. In addition, our revenue was dominated by projects bid during a very competitive environment, resulting in limited margin opportunity on the projects that were awarded during that period. These issues resulted in margin outcomes well below our historical range and revenue levels that caused under-recovered construction overheads and poor leverage of SG&A, all of which combined to account for results that were below our expectations. The company has been consistently working to improve these results. We initially reduced our overhead structure by 30%, and have since continued to tightly manage costs. We focused the business to our core markets, closing or selling non-core assets. We streamlined and transformed our business for the future with a focus on increase in efficiency, improving performance, and ultimately providing more consistent bottom line results and long-term sustainability for all stakeholders. Finally, with our more focused approach to business development in our core markets, we have been growing the backlog with projects that present a better marketing opportunity. The results for the fourth quarter of fiscal 2023 demonstrate we are making progress toward our business improvement objectives. Let's take a closer look at project awards and backlog. Project award activity throughout fiscal 2023 was significant and the trend is expected to continue. During fiscal 2023, we averaged just under $200 million in revenue per quarter. At the same time, we averaged over $330 million in project…

Thank you, Kevin. Before we open for questions, I'd like to reiterate some key takeaways for today. The spending recovery in our end markets is beginning to materialize in a meaningful way as we commence work on recently awarded large capital projects. We have strong visibility into our revenue and are focused on maximizing our profitability after ongoing an internal transformation that has optimized our operating structure. We believe our strategic approach to the energy and industrial end markets we serve, the strong tailwinds, and deep client relationships we hold that have resulted in multiple projects will lead to further near-term backlog growth and strong performance for the foreseeable future. In the long term, the reshaping of global energy markets, energy supply security, the push towards lower carbon activity, and industrial reshoring all create opportunities that we expect will drive our business for years to come. Finally, I generally don't like to talk about our share price on earnings calls, but the last time we had a backlog of this size was in June of 2019, and our share price represented a much better valuation of the business and its potential. As we execute on our backlog and pursue the further revenue opportunities we see in our end markets, I'm confident we are on a strong path to generate value for our stockholders. With that, I'd like to call for questions.

[Operator Instructions] Our first question comes from John Franzreb with Sidoti.

Good morning, everybody, and congratulations on another great bookings quarter. John, I'd like to start with the gas processing job that's kind of been weighing on results for the past couple quarters. Can you give me some update? Is that job completed, or if not, how long will continue to hit the P&L?

Yes, so first of all, congratulations on the Jets victory last night.

Thanks.

It was painful.

I hope you can find another quarterback.

Yes, so the gas processing project, we reached mechanical completion in the fourth quarter and are in a process of demobilizing, which will be completed demobilizing in this quarter. Facilities up and running, relationships with the clients good, and we do not expect any material change in the forecast of that job.

And to be clear, so the results in the fourth quarter, it basically came in line with our forecast that we had last quarter.

Right. It's a $3 million drag per quarter or has been roughly. So continue to be dragged into the first quarter and largely done by the second. Is that what I'm hearing from you guys?

No. It'll have a much smaller impact in the first quarter here.

Okay. Got it. And in regards to your comments about the first quarter awards are going to be similar to the fourth quarter. And you also, I think in your prepared remarks, said the first half is looking like it's going to be a good booking half of 2024. Would you expect to exit fiscal 2024 with a backlog profile of above that $ 1 billion threshold or not?

Yes, I think based on what we're seeing in the market, and as always, everything's script by timing of awards but where we are in our proposal activity and some contract negotiations that our expectation is we would exit the fiscal year in a better backlog position than we entered it.

Great. Great news. And just lastly, given that booking profile, can you talk a little bit about labor and staffing? Are you going to have to add personnel or are you satisfied with the current staffing level given the backlog profile?

Yes, no, I think from a professional level, there are opportunities for us to add key positions into our operations for our projects. And so we've been pre-active in recruiting over the last quarter or two because we saw the work that was coming. So we'll continue to do that and have opportunities for that, both in our project resources and engineering resources. And then from a craft labor standpoint, I think we've always been pretty successful of being able to recruit and get craft labor to our job sites around North America. And so, while that always is one of the challenges for our business and certainly our peers, we think we do a pretty good job of that and creating employer choice kind of situation where people want to come to work.

I just add on that one of the things we're trying to do is leverage the back office cost structure we have. And so, John mentioned areas where we'll potentially need to augment our current staffing. But if you look at back office there should be minimal increases there.

Our next question comes from Oliver Chornous with D A Davidson.

Hi, guys. Thanks for having me. I'm sitting in for Brent Thielman today. I was wondering if you could discuss the net offering losses you have available and how that should shield your tax expense for fiscal 2024.

Yes, so we do have a number of tax attributes out there that we're able to utilize. So I think you're going to see an extremely low effective tax rate in fiscal ‘24. Somewhere in the low single digits is our current estimate. That benefit will also continue into fiscal ‘25. I think the tax rate will probably be a little higher than, but it'll still be low compared to historical rates. My guess is it's probably going to be somewhere around 10% as an estimate right now.

Oh, that's great. Thanks so much. And then second, could we talk about the process and industrial facility segment in the context of 2024 versus 2023? Should we anticipate a lower work volume this year but improve profitability, especially as you get through that project that we just talked about?

That's exactly right. We'll have -- we've got a little bit of a timing gap on when capital projects start. There was a project we got awarded in the third quarter in that segment, and that project will meaningfully benefit revenues until the very first of fiscal ‘25. And the projects that, this project has had some issues that's completed now, so there will be a dip in revenue there. In addition, we also sold some non-core assets. So that segment will be down, but I think the profitability should be better. And when you think about, well, that's decreasing the increases in the other segments, the backlog on those projects will be starting in fiscal ‘24 and benefiting this year. So from a consolidated basis, I want to be clear that we expect some good growth in revenue for the fiscal year.

Awesome. That's great. And then, I guess, last question, if I can sneak it in. Could you discuss your capital allocation priorities? Is M&A on the table as you're starting to see the business stabilize?

Yes, so right now, our focus has been returning to profitability. Our -- so our capital priority is going to be related to executing on these projects we're putting in backlog and the ones that will be put in backlog. So that means there may be additional capital expenditures we need to make. We've definitely spent less on CapEx the past few years, so there could be some CapEx there. That'll be a priority. And then we'll continue to manage our working capital, that'll be the second priority. But I would expect that you're going to see positive cash flows as we move through the year. Once we return to profitability, yes, we'll think about what's the right next steps which could include M &A.

[Operator Instructions] Our next question comes from John Franzreb with Sidoti.

Yes, I'm just curious about your expectations for the Inflation Reduction Act. And when we would expect to see jobs related to that hit your backlog profile, any kind of thoughts about that would be helpful?

I think what our expectation is that those dollars weren't necessarily running into shovel-ready projects when they became available. But what we think is they'll start having a material impact on project opportunities for us in calendar ‘24.

Got it. And how should we think about gross margin recovery across the segments, given the called slow but meaningful turnaround in the backlog profile, where are you going to see it first that had the most meaningful impact? And where is it going to lag maybe a little bit, looking at it on a segment basis?

So I think the biggest benefit you're going to see in fiscal ‘24 to start with is going to be in storage. I think you'll see revenues increases and move through the year. And that's going to eliminate that under recovery issue that's been pretty significant in that segment. And on top of that, the growth is going to be coming from projects that do present a good margin opportunity. So I think you can expect good margin growth in that segment. I would say the second segment, the utility segment, is going to be pretty good from a margin aspect from the result of the peak shaver work that we've got combined with our work in power delivery, those teams this last year really performed extremely strong for us and some of the best in the company. So that's been good to see. And I'm sure they'll be trying to continue that. I think we talked about process and industrial facilities. I think the profitability is going to be better on lower revenues, but again, the rest of the business it has performed pretty well throughout the year. Now that's a mix of capital work and reimbursable maintenance work. So it has a little bit of different project mix that can impact the margins a bit because it's heavily weighted to reimbursable. But I think all three margins, or all three segments should see, or forecast to see good margins, in the year. Now, will we get to the consolidated 10%? I think we can. It definitely would not, probably not happen until the second half of the year.

Great, Kevin. Thank you. That was very helpful for the insight. And John, get your arm ready.

Okay. You're in trouble.

Thank you. I'd now like to turn the call back over to John Hewitt for any closing remarks.

Just thank you to everybody for attending today's call. Appreciate your continued support of the company. And I wish everybody to have a safe quarter until we speak to you again. Thank you.

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