MTRX

Matrix Service Company (MTRX)

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Exchange: NASDAQ
Industry: Basic Industries
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Matrix Service (MTRX)

Q2 2011 Earnings Call

February 07, 2011 11:00 am ET

Executives

Michael Hall - Chairman

Kevin Cavanah - Chief Financial Officer, Principal Accounting Officer, Vice President of Finance, Vice President of Accounting & Financial Reporting and Controller

Joseph Montalbano - Chief Operating Officer and Vice President

Analysts

Michael Harrison - First Analysis Securities Corporation

Matt Tucker - KeyBanc Capital Markets Inc.

Michael Harrison - First Analysis

John Rogers - D.A. Davidson & Co.

Matt Duncan - Stephens Inc.

Lee Jagoda - CJS Securities, Inc.

Martin Malloy - Johnson Rice & Company, L.L.C.

Richard Wesolowski - Sidoti & Company, LLC

Presentation

Operator

Greetings and welcome to the Matrix Service Co. Second Quarter Financial Results 2011. [Operator Instructions] It is now my pleasure to introduce your host, Kevin Cavanah, Vice President and Chief Financial Officer of Matrix Service Co. Thank you, Mr. Cavanah, you may begin.

Kevin Cavanah

Thank you, Christine. I'd 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 Co. 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 disclosed in our annual report on Form 10-K for our fiscal year ended June 30, 2010, and in subsequent filings made by the company with the SEC.

I would now like to turn the call over to Mike Hall, Chairman of the Board of Directors of Matrix Service Co.

Michael Hall

Thank you, Kevin, and good morning to everyone. We appreciate your joining us today to discuss the results of our second quarter ended December 31, 2010. Joining me on the call today along with Kevin Cavanah, our Chief Financial Officer; is Joe Montalbano, our Chief Operating Officer, who will be available to answer questions after our prepared remarks.

The Board is very confident in the management team at Matrix Service Co. And is very pleased with the caliber of talent in the organization. This is evidenced by the recent appointment of Kevin Cavanah as the company's Chief Financial Officer. Kevin has been with the company seven years, most recently serving as the company's Vice President and Controller. Joe Montalbano oversees all of the company's operations, including engineering, fabrication and business development. The Board is actively engaged in the search for our next CEO and has identified a number of potential candidates, both internally and externally. We expect to complete this process early in our fiscal fourth quarter.

We are pleased that the company has continued to operate successfully, following the recent departure of our former CEO and CFO, which is demonstrated with the results for the second quarter and for the first half of 2011. Safety continues to be the cornerstone of the company's success, and we completed calendar year 2010 with the lowest total recordable incident rate in the company's history.

Revenues for the three-month and six-month periods increased over the same periods last year. While backlog of $366 million is down somewhat from the first quarter, it remains above fiscal 2010 year-end levels and that of the second quarter last year. In addition, we continue to experience substantial bid volume and improving market conditions in both segments, which supports our longer-term view of a positive backlog trend.

The operating results in the quarter and six-month period are in line with our expectations, driven by stronger demand for Construction Services in the aboveground storage tank market and Construction and Repair and Maintenance services in the Electrical and Instrumentation market. Revenue in the E&I market was up 117% for the six months compared to the prior year, and AST Construction revenues increased 34% over the six-month period a year ago. Unfortunately, our Repair and Maintenance Service segments continued to be soft, although there are some signs of recovery. Consolidated gross margins, while lower compared to the same periods last year, increased over the last two quarters as a result of better overhead costs recovery, driven by increased business volume and costs reductions.

The cost reductions implemented in fiscal 2009 and fiscal 2010 had contributed to our operating results in the three-month and six-month periods. Our proactive and aggressive changes to our cost structure, necessitated by the economic downturn or slowdown have allowed the company to more fully absorb overhead costs. We will continue to manage our costs to maintain the appropriate resources given the level of economic activity in our business.

With that in mind, we are encouraged by the improving outlook in many of our businesses as we continue to see a number of attractive opportunities across our core markets. We continue to see strong demand in the Construction Services segment, and we are also beginning to experience growing demand in the Repair and Maintenance Service segment. The Aboveground Storage Tank business continues to strengthen as a result of several factors. A significant driver of the AST market continues to be the development of the Canadian oil sands and related pipelines necessary to transport crude oil to the Gulf Coast. In addition, the increasing number of finished product formulations requires additional tankage as terminal operators look to improve logistics at their facilities. Finally, global demand for products and security concerns is creating greater demand for export terminals in aviation fuel storage.

These factors have combined to drive demand for storage in the United States, improving economics for terminal operators and spurring greater investment in storage assets. Matrix Service remains a leading provider in this market as a result of our quality engineering and construction personnel, and we are well-positioned to respond quickly to the growing number of opportunities.

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