Good morning, and welcome to the Matrix Service Company conference call to discuss results for the third quarter of fiscal 2025. [Operator Instructions] As a reminder, this conference call is being recorded. I would like to turn the conference over to today's host, Ms. Kellie Smythe, Senior Director of Investor Relations for Matrix Service Company. Please go ahead.

Thank you, Didi. Good morning, and welcome to Matrix Service Company's third quarter fiscal 2025 earnings call. Participants on today's call include John Hewitt, President and Chief Executive Officer; and Kevin Cavanah, Vice President and Chief Financial Officer. Following our prepared remarks, we will open up the call for questions. The presentation materials referred to during the webcast today can be found under Events and Presentations on the Investor Relations section of matrixservicecompany.com. As a reminder, 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 because 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. The forward-looking statements made today are effective only as of today. To the extent we use non-GAAP measures, reconciliations will be provided in various press releases, periodic SEC filings and on our website. Finally, all comparisons today are for the same period of the prior year, unless specifically stated. Related to investor conferences and corporate access opportunities, Matrix will be participating in the Sidoti Micro-Cap Virtual Conference on May 21 and 22, and we'll also be participating in the Stifel Cross-Sector Insights Conference on June 3 and 4 in Boston. If you'd like additional information on these events or would like to have a conversation with management, I invite you to contact me through the Matrix Service Company Investor Relations website. Turning now to safety. At Matrix, our people take pride in the fact that our work shapes a brighter future, enhances quality of life, and generates lasting value for our employees, partners, shareholders and the communities we serve. We do so by engineering, constructing and maintaining energy and industrial infrastructure that elevates the standard of living, not just here but around the globe. This infrastructure is essential for powering our homes, fueling transportation, supporting businesses and providing the foundational elements for producing clothing, medicine, technology, recreational activities, among many other things. To fulfill our objective, on our work sites and in our offices, we must maintain a steadfast commitment to the safety and as our leading core value and prioritize quality execution in our work. This week, we join our clients and others in the construction industry for the Construction Safety Week 2025, marking the 12th annual industry-wide initiative dedicated to highlighting the importance of safety in the workplace. At Matrix, our safety culture is rooted in a genuine concern for the mental and physical well-being of our people. It shapes our expectations, informs our leadership and is vital to our ability to realize our mission. On behalf of the company's leadership team, I would like to express my gratitude to the employees for our commitment and responsibility in safely pursuing our mission. I'll turn the call over to John.

Thank you, Kellie, and good morning, everyone. I want to begin by reviewing the organizational improvements we are making to represent a shift in the company's operational structure that will address several key business imperatives. Among them, creating a more efficient organization to ensure we deliver on the significant projects and opportunities in front of us; improving the competitiveness of our offering and strategic focus; and benefiting from the greater speed and agility through a leaner, flatter organization. First, we eliminated senior-level positions to ensure we have a more efficient and effective organization. Second, from an operating perspective, we have streamlined our engineering and construction services to create a more seamless offering. Specifically, we recently promoted Shawn Payne to the newly-created position of President of Engineering & Construction. The new position will have oversight responsibility of the company's operating subsidiaries and client services. Shawn joined Matrix in 2012 and most recently served as President of the company's non-union construction subsidiary. John will report directly to me. Third, we are decentralizing elements of our business development organization to create a more integrated sales and operations function. The large EPC projects get a significant amount of attention across the enterprise during the proposal process. These projects are critical to our growth strategy. But the foundational services of our business in small capital construction, construction-only, turnarounds, maintenance and repair are equally important to the baseload revenue for the company. Directly reconnecting the development teams to the P&L leaders will create more momentum, opportunities and awards for this part of our revenue platform. These foundational services deepen customer relationships, build bench strength and keep us competitive. Overall, this reorientation of the business development function will improve capture rates, growth strategies and, ultimately, revenue across the company. Finally, the company has begun the process of…

Thank you, John. Revenue growth continued in the third quarter, increasing 21% to $200.2 million, compared to $166 million in the third quarter last year. The growth was driven by the Storage and Terminal Solutions and Utility and Power Infrastructure segments, partially offset by reduced revenue volumes in Process and Industrial Facilities. Gross margin was $12.9 million or 6.4% in the quarter, compared to $5.6 million or 3.4% for the third quarter of fiscal 2024. I will discuss drivers for that improvement when I get into the segment results. I want to provide an update here on the impact of under-recovery of construction overhead costs. As a result of the revenue growth in the quarter, the impact of under-recovered overhead decreased to 280 basis points. This compares to 370 basis points last year and is the lowest level in two years. As the revenue ramp continues, construction overhead will become fully recovered and the negative impact on margins will be eliminated. SG&A expenses were $17.7 million in the third quarter, compared to $19.9 million for the prior year. The decrease is primarily due to lower cash-settled stock-based compensation expense. For the third quarter of fiscal 2025, the company had a net loss of $3.4 million or $0.12 per share, compared to a net loss of $14.6 million or $0.53 per share in the third quarter of fiscal 2024. Adjusted EBITDA improved to breakeven in the quarter, compared to a loss of $10 million in the third quarter last year. Moving to the segments. Storage and Terminal Solutions segment revenue increased 77% to $96.1 million in the third quarter, compared to $54.3 million in the third quarter of fiscal 2024. The higher revenue is being driven by an increased volume of work for specialty vessel projects. Gross margin was 3.9% in…

[Operator Instructions] And our first question comes from John Franzreb of Sidoti & Company. Your line is open.

Good morning, everyone, and thanks for taking the questions. I guess I'd like to start with the revenue guidance. Kevin, you just said $50 million was baked into that business, I guess, for this fiscal year. Can you just walk us through the decision-making process to exit the business? Is there a potential buyer out there? Will you just wind it down? And what's the relative cost savings from exiting that business?

I'll give you some of the strategic stuff there, John. So going into the year, the market for the business was higher than $50 million. But because we're, probably simply put, we are too big to be small and too small to be big, and so our competitive dynamics in that business made it difficult for us to win work at acceptable margins. And plus the capital investment in that business would be dramatically higher than the rest of the company. So it was sort of on our watch list this year, that if we were able to pick up some good projects with acceptable commercial terms, then we would -- it would modify or at least would guide our decision on whether we thought there was an opportunity to continue to grow it or that we needed to sell it or that we needed to just shut it down. So as we moved into the -- and what we saw was the opportunity for us to win some nice projects in the back half of the fiscal year. And we didn't win any of them. And so, trying to win those projects around the commercial framework that we think is accessible to the business. So when we started to see that those projects were not going to come into our backlog, we made a decision that we're going to wind the business down. Without any kind of positive looking backlog, it would be difficult to find a buyer for the business where just they're picking up equipment and people. So we made the decision that we just wind the business down and we'll eventually sell off some of the construction assets that are associated with that business. We still have some small contracts that we're going to be working on out into fiscal '26, but doesn't represent a lot of revenue. And we're doing that with clients that we do other business with. So we just don't want to just walk away from those jobs, which you can't contractually anyway. So we want to continue to support those clients because, again, because they have other work that our electrical business does. That's kind of how we got to where we are.

Understood. And the potential cost savings?

It's more about -- there are cost savings and that -- but there's also a reallocation of some resources to the electrical and instrumentation business that we're keeping. And then I think that business has been operating at a loss. So that's probably the bigger savings than the cost structure. It was a relatively low-overhead business than the equipment. And that the reason for that is that this was a business that we grew organically. This wasn't from an acquisition.

Okay. Fair enough, Kevin. The other part of the adjustment to the revenue guidance was what you said, was deferrals. I'm curious, is the entire balance deferrals, or some cancellations? And the deferrals, what kind of timing are we talking about now versus three months ago?

So some of it is -- it's a combination of a couple of things. One is that one of the major projects that was in the awards for the Q3, which was in storage, we had anticipated actually winning in Q2 and had started negotiating a contract for that project in Q2. And as we moved into Q3, we thought that that project will get awarded in January and that we'd be able to get engineering started, we'd be able to get our procurement for all the plate steel associated started, and probably get on site and start doing some of the civil work. So we had expected an earlier award and revenue flowing from that project impacting this fiscal year's revenues. But we actually don't sign the contract till the very last day in March. And so basically what that did is pushed all a majority of what we thought was going to be some revenue off that project into June and probably into fiscal '26. So that's one thing. And that's just about the how long it took to put the contract together, which is not always -- it's not necessarily unusual. And then we had -- we got another project that we've been kind of verbally selected on, that one of its offtakers for that client is in the -- is on the other side of the ocean. And with some of the trade stuff that's going on, there has been a -- there had been a delay in getting that offtake sold. We think that delay is over with and are expecting that project to move forward here within the next -- within this quarter or the first quarter of '26. Other than that, I mean, I think it would be unreasonable for us to assume that these uncertainties around the tariff issues and finalization of environmental policy and the regulatory environment isn't keeping clients a little bit hesitant, in some cases, on how they're going to spend their capital dollars. But I can tell you, we've had several of our core clients tell us very strongly that their intentions are, over the next four years, to spend as much money as possible on their energy infrastructure in what they perceive to be a much easier regulatory environment. And so we're excited about that -- excited about us being able to take advantage of that opportunity because, A, because of our strong relationships with these clients, and two, because of the kind of services and strong brand position we have in those markets.

Got it, John. And one last question. You mentioned that you're targeting smaller jobs. Can you talk a little bit about what you think the opportunity profile is as you reengage in some of those smaller projects? Maybe size it for us and timeline it when you expect to start hitting on them?

Yes. So we -- I mean, we as an organization, our history in our organization has always been a mix in the portfolio of maintenance work, turnaround work, small capital projects, construction-only projects, mixed in with one or two large capital EPC jobs. And we continue to see the opportunity for these larger EPC projects to continue to enter the backlog, and probably for us in a more thoughtful way, that they fit into our execution plans and our resource availability. But that doesn't minimize the need in our business for this smaller activity that I've laid out. And I think part of our change in the business development structure is we sort of lost touch with that a little bit. I think these larger projects get a lot of attention from the organization. But we need those smaller projects. They build relationships with clients. They help us to build and strengthen our execution teams. They're great for brand recognition. They eat overhead. And so we just need to do a better job of pursuing and winning those smaller, what I'm calling foundational elements of our business, moving forward. And so some of the actions, strategic actions, we've taken are directly related to our desire to be better at that than we have been over the past 18 months.

Okay, well, good luck with that. I'll get back into queue. Thank you, gentleman.

Thank you.

Thank you. And our next question comes from Brent Thielman of D.A. Davidson. Your line is open.

Hi, thanks. Good morning. John, real big-picture question here. I mean you've been through your share of cycles in the past and we value of your perspective here. But look, the geopolitical macroeconomic environment today, you take what you're seeing now, you look at prevailing commodity prices, to some degree influence how your customers spend. I guess my question is, John, I mean, how is all of this stuff that we're seeing in the market, how do you think it might influence what your customers may end up doing here? Not necessarily in the short term, but thinking medium term. Is all of this ultimately a positive driver for your business? I'd just love your perspective there.

Well, I think, whether it's tariffs or no matter what it is we see in the media, there's a lot of rhetoric running around, both out of the Washington, D.C. and out of the media houses, and across the globe. So I think it's difficult for all of us, whether you're a business leader or a normal citizen, to figure out what the future looks like. But for me, I think, and what we hear from our clients, I think they're being adding some more thoughtfulness to what their capital plans are. But I think overriding all of that is the, not only domestically, but globally, the demand for energy is continuing to rise. That demand has got to be met. It is not necessarily going to be 100% met by renewable energy sources. You've got huge electrical infrastructure needs in the U.S. alone to fuel the growth in power demand. And so I think irrespective of how all the tariffs things settle out, which I personally think will get settled out here over the next three or four months, I think we're still going to see a lot of infrastructure put in place. We're going to see this huge demand globally for NGLs coming out of the U.S., and for LNG, because, I mean, basically, the demand for energy is growing, like I said, and it supports a higher quality of life around the globe, and there's a lot of instability in the energy sources and people are going to be looking to the U.S. to provide that stability. So I'm pretty bullish and confident in the markets that we're in with our brand position, particularly around specialty vessels and specialty vessel storage and infrastructure, that we're going to play a strong role in that as we look out to the future.

Yes. Appreciate that. And then I guess another one, Kevin, this might be more for you. But there's been an expectation for sort of a progressive ramp in volume and revenue as the fiscal year has played out. And I think maybe more specific to storage, I mean you had terrific growth compared to last year, but the growth was somewhat muted relative to the previous quarter. So as you kind of look at the fourth fiscal quarter, is there enough confidence here that we should see that segment step up? I think that's sort of critical to support the outlook. And I guess maybe the question, are you seeing the critical jobs moving forward now in that segment that really should contribute here?

Yes. So you're right that the revenue was, in the third -- in Q3 was pretty consistent with Q2. Part of that was just timing of procurement. Now when we're looking to 4Q, I'm expecting to see a really strong growth cycle in the Storage and Terminal Solutions segment. So I think that is supportive of the outlook. I think you'll also see some growth in Utility and Power Infrastructure. Process and Industrial Facilities took a step-up this third quarter. I would expect it to be somewhere close to that same level here in the fourth quarter. So the combined should have a strong upward move in revenue level for 4Q. I think that will benefit overhead recovery and the gross margin percentage in a significant way.

Perfect. Okay, that's all I had. Thank you.

Thank you. This concludes our question-and-answer session. I would now like to turn it back to Kellie Smythe, Senior Director of Investor Relations, for closing remarks.

Thank you. As a reminder, we will be participating in the Sidoti Micro-Cap Virtual Conference on May 21 and 22. We'll also be attending the Stifel Cross-Sector Insights Conference on June 3 and 4 in Boston. Additionally, if you'd like to have a conversation with management, please contact me through the Matrix Service Company Investor Relations website. You may also sign up to receive Matrix news by scanning the QR code on your screen. Thank you for your time.

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