Matrix Service Management Discusses Q2 2013 Results - Earnings Call Transcript

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Matrix Service (MTRX)

Q2 2013 Earnings Call

February 07, 2013 11:00 am ET

Executives

Kevin S. Cavanah - Chief Financial Officer, Chief Accounting Officer, Vice President and Secretary

John R. Hewitt - Chief Executive Officer, President and Director

Analysts

Matt Duncan - Stephens Inc., Research Division

Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

Richard Wesolowski - Sidoti & Company, LLC

Michael J. Harrison - First Analysis Securities Corporation, Research Division

Martin W. Malloy - Johnson Rice & Company, L.L.C., Research Division

Tristan Richardson - D.A. Davidson & Co., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Matrix Service Company Conference Call to Discuss Results for the Second Quarter ended December 31, 2012. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Kevin Cavanah, Vice President and Chief Financial Officer. Please begin.

Kevin S. Cavanah

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 annual report on Form 10-K for our fiscal year ended June 30, 2012, and in subsequent filings made by the company with the SEC. To the extent the company utilizes non-GAAP measures, a reconciliation will be provided in various press releases and on the company's website.

I will now turn the call over to John Hewitt, President and CEO of Matrix.

John R. Hewitt

Thank you, Kevin, and welcome, everyone, to our second quarter fiscal year 2013 update communication. I trust everyone has had a restful holiday and like us, are looking forward positively to the new year.

For the 6 months ended December 31, 2012, Matrix Service Company had a total recordable incident rate, or TRIR, of 0.69. Our experience modification rate, or EMR, which is evaluated May 1 of each year, was 0.59 for 2012. While these statistics are considerably below the construction industry average, our entire organization remains committed to a 0 incident culture and mindset. We feel our safety performance is a major differentiator in the markets we serve and represent one of the primary reasons why our customers choose Matrix Service Company over our competitors.

We recently completed an annual strategy refresh with the leadership team, which confirms our baseline plan. Overall, we continue to see progress in the execution of our strategy, and we are comfortable with the direction we are headed and the strength of our markets.

As we have discussed on previous calls, growth and expansion is not without its risks and challenges, but we firmly believe that the strategic journey we are on is creating a world-class business and driving value for our shareholders. We continue to work hard to minimize risks and challenges, with diligence in our management processes, upgrades and improvements to our systems and procedures, along with driving toward best-in-class employee recruitment, development and training.

We are actively exercising and improving these aforementioned core business elements in alignment with the strategic evolution of the business. The leadership team's ability to minimize the downside while maximizing the upside potential is a critical part of our long-term success. These core elements are integral to the success and consistent performance across all of our business segments and services.

I say this to you to set the framework for the $0.08 EPS impact we recognized in the second quarter. This charge related to a single project in the Storage Solutions segment as part of our Western Canadian operations. The project contains some estimated elements related to field labor productivity and their associated costs that did not accurately represent the actual costs we are experiencing in this geographic area. Further, the active energy industry in Western Canada has changed the market dynamics for construction labor and its associated costs that added stress to the project.

The project, while estimated, proposed and won in late 2011, did not commence field construction activities until the fall of 2012. As such, this skill-related cost issues were not known until the end of the second quarter of this fiscal year. In this specific instance, our estimate development, proposal clarification and review process in place at the time was not diligently followed. Consistent with our strategic growth plans for our Western Canadian operations, we have added a considerable amount of experienced management, including positions in project management, estimating and project controls, over this past year. We are very comfortable that all steps necessary to strengthen the controls environment and minimize these events in the future have already been taken.

Additionally, the forecast for this project has been thoroughly reviewed by multiple levels of the organization, checked against other active and completed projects in the region and, therefore, we believe the forecast at completion reflects current market conditions. Further, we have reviewed all projects in backlog and confirmed that the appropriate estimate elements are in place.

Western Canada is an area of high growth and opportunity for our organization. It continues to be a region that will be a foundational element of our long-term strategy. We are very diligent in selecting projects that provide us the best opportunity for success. Only the projects which we can staff with top teams of craftsmen and management are targeted. In some cases, we have passed on opportunities in order to better assure our success and strategically control the growth of the business.

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