Matrix Service pany(MTRX) - 2022 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Revenue for the second quarter was $162 million, aligning with expectations, while gross margins were 2%, significantly impacted by under-recoveries of construction overhead costs, which negatively affected gross margins by over 500 basis points across all segments [9][10] - The company reported an adjusted net loss of $10.2 million, with an adjusted earnings per share of $0.38, while the quarterly net loss was $24.9 million, resulting in a loss per share of $0.93 [10] - The backlog increased to $592 million, with a book-to-bill ratio of 1.4 for the first half of the fiscal year, indicating a strong recovery in market demand [5][8] Segment Data and Key Metrics Changes - Utility and Power Infrastructure segment revenue was $55 million with a gross margin of -0.9%, affected by low volumes and competitive bidding [11] - Process and Industrial Facilities segment revenue was $50 million, with a book-to-bill of 2.2, indicating strong project awards, although revenue volume did not yet reflect this [12] - Storage and Terminal Solutions segment generated $57 million in revenue with a gross margin of -0.3%, impacted by under-recovery of construction overhead costs and lower margins on specific projects [13] Market Data and Key Metrics Changes - The company noted a significant increase in project awards, with over $210 million booked in the first two quarters of fiscal 2022, reflecting a positive market recovery [5][19] - There is a growing demand for capital investment in natural gas-related infrastructure, driven by rising global demand and increased gas prices [20][21] - The bidding environment is highly active across all segments, with notable opportunities in clean energy and traditional energy markets [18][24] Company Strategy and Development Direction - The company is focusing on transitioning to clean energy and renewables while maintaining its position in traditional energy markets, with a strong emphasis on capital projects related to renewable fuels and natural gas [18][19] - Management is implementing internal initiatives to streamline operations and reduce costs, having already cut approximately $80 million in costs since the pandemic began [27][28] - The company is expanding its maintenance operations under Master Service Agreements (MSAs) to provide more stability and predictability in revenue [22] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the recovery in end markets, with expectations of improved revenue and profitability by the fourth fiscal quarter [8][17] - The sentiment among clients is shifting positively, with increased spending plans and confidence in infrastructure investments [17][18] - The company anticipates a gradual translation of backlog into revenue, with significant impacts expected in the latter half of the fiscal year [54] Other Important Information - The company had $93 million in cash at the end of the quarter, including $28 million in restricted cash, with total liquidity increasing to $102 million [15][16] - A non-cash valuation allowance of $14.2 million on deferred tax assets impacted earnings, but the company expects to utilize these assets when profitability returns [10] Q&A Session Summary Question: Change in cost structure and its impact - Management confirmed that the change in cost structure enhances earnings power but does not alter gross margin targets or break-even revenue levels [33] Question: Details on project impacting gross margin - A thermal storage project faced scope development issues post-award, leading to increased costs and delays, but management expects to complete it by the end of April [34] Question: Share repurchase strategy - Management indicated that cash priorities focus on funding projects and increasing capital spending rather than share repurchases at this time [38] Question: Cash flow dynamics with ramping revenues - Cash flow will depend on the source of revenue increases, with maintenance activity requiring upfront funding and capital projects needing careful cash management [41] Question: Infrastructure upgrades and carbon footprint minimization - There is significant bidding activity for LNG facilities and midstream gas processing upgrades aimed at reducing carbon footprints, reflecting industry willingness to invest [44][46] Question: Lag in backlog translating to revenue - Management expects backlog to start impacting revenue in the third quarter, with a gradual build-up rather than an immediate spike [52][54] Question: Impact of labor and raw material inflation - The company is managing to incorporate inflation costs into bids, although labor sourcing may become more challenging as work volumes increase [56][58]