Matrix Service, ( MTRX)

Q1 2010 Earnings Call

November 5, 2010 11:00 am ET


Thomas Long - Chief Financial Officer, Vice President and Secretary

Michael Bradley - Chief Executive Officer, President and Executive Director


Fred Buonocore - CJS Securities, Inc.

Matt Duncan - Stephen’s Inc.

Mike Harrison – First Analysis Securities

Tahira Afzal – KeyBanc Capital

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



Greetings, and welcome to the Matrix Service Company First Quarter 2011 Results Call. (Operator Instructions) It is now my pleasure to introduce your host, Tom Long, Vice President and Chief Financial Officer for Matrix Service Company. Thank you. You may begin.

Thomas Long

Thank you, Christine. I would now like just to take a moment to read the following. Various remarks that the company may make about the future expectations, plans and prospects for Matrix Service Co. 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, 2010 and in subsequent filings made by the company with the SEC.

I now like to turn the call over to Mike Bradley, President and Chief Executive Officer of Matrix Service Company

Michael Bradley

Thanks Tom and good morning everyone. We appreciate you joining us today to discuss results for our first quarter ended September 30, 2010. It has been only a month since our last earnings conference call so our comments today will be relatively brief.

To begin, we are pleased to report that the fiscal 2011 is off to a good start, was followed backlog growth in both our construction services and repair and maintenance services segments. Consolidated backlog has grown in both of the last two quarters and now stands at $395 million, a 20% increase over the prior year and the highest level since May 2009. The $42 million increase in the first quarter was primarily due to awards in the aboveground storage tank market or we are seeing renewed capital investment and a pickup in repair work.

In addition to the backlog growth, we are pleased with the overall operating results in the first quarter which are driven by the aboveground storage tank and the electrical and instrumentation markets. Revenue from our electrical and instrumentation business more than doubled in the first quarter compared to the prior year and the aboveground storage tank construction revenues increased 30% over the same period a year ago. Consolidated gross margins while lower compared to the prior year’s increase from the fourth quarter of fiscal of 2010 to the first quarter of fiscal 2011 despite a slow start of the quarter as I mentioned during the last conference call.

We remain focused on project selection and execution in order to improve our gross margins going forward. Cost reductions implemented over the past two years contributed to our improved operating results in the quarter. The aggressive changes in our cost structure and response to the economic slowdown has positioned the company to better absorb overhead cost and improve overall gross margins. We will continue to manage our cost structure in response to ever changing market conditions. However, improvements in our business segments may require us to add resources to address the opportunities we see developing.

As we look forward, we are encouraged by a number of positive developments in many of our businesses. This trend is supported by improvements in the economy in capital markets and many projects which were delayed or cancelled are now moving forward as long term outlook improves.

As we discussed on our last conference call, the contingency opportunity to across all of our core market still remain cautious with regards to the timing of future awards. Construction opportunities in the aboveground storage tank business are increasing as a result of ongoing development of the Canadian oil sands and related pipeline construction. In addition, we are bidding projects for a variety of companies that seeks to expand their storage assets.

Matrix Service is well-positioned to respond quickly to these opportunities to the development of our key engineering and construction personnel and utilization of our fabrication facilities. The AST repair maintenance business is also showing some signs of improvement which is encouraging.

As we stated on our last call, we continue to take a cautious view of the downstream petroleum market in general as the near term outlook really remains uncertain. The reason up trend in refinery utilization rates and improving cracks spreads suggest that the cycle of domestic turnaround is likely to firm up during the course of calendar year 2011. While the current activity has picked up the level of competition continues to make it difficult to capture work at effective gross margins. We do believe the market conditions are likely to improve in the intermediate to long term as the economy improves.

We continue to pursue opportunities in the upstream petroleum markets as we discussed in our last call in the recently secured project awards. Our capabilities allows us to provide mechanical services and fabricated equipment to support new drilling programs and planned expansions throughout the western U.S. and western Canada. These opportunities represent significant revenue potential for the company as we move into calendar years 2011 and 2012. The power electrical and instrumentation market continues to represent a sizeable growth area for the company over the intermediate and long term as a result of our expanded operations in the northeast corridor and the mid Atlantic states.

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