Matrix Service's CEO Discusses Q3 2012 Results - Earnings Call Transcript

Matrix Service (MTRX)

Q3 2012 Earnings Call

May 08, 2012 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

Richard Wesolowski - Sidoti & Company, LLC

Matthew P. Tucker - KeyBanc Capital Markets Inc., Research Division

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

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

Ross Taylor - Somerset Capital Advisers LLC

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Matrix Service Company Third Quarter Fiscal 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. [Operator Instructions] I would now like to turn the conference over to today's host, Mr. Kevin Cavanah, Vice President and CFO for Matrix Service Company. Thank you. Mr. Cavanah, you may now 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, 2011 and in subsequent filings made by the company with the SEC.

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

John R. Hewitt

Thank you, Kevin, and good morning. Today, we'll provide an update on the company's strategic plans and investments, discuss the operating segment changes, as well as our results for the quarter and 9 months ended March 31, 2012. In addition, we will comment on the change in our full year guidance.

The company completed an update of its long-term strategic plan in the third quarter and has begun investing in many strategic growth areas, including mining and metals, material handling, industrial cleaning, high-voltage electrical and shale energy development opportunities. We're targeting a consolidated average revenue growth rate of 12%-15% per year over the next 5 years. This growth will come from organic development of our existing business lines and services, leveraging our existing strong market presence and reputation, recruitment of key leadership and select acquisitions that provide a strategic and cultural fit.

The company is also investing in critical infrastructure to support our growth, such as safety, corporate development, information systems, employee training and risk management. While these investments are expected to have a negative effect on earnings in the short term, the management team believes these actions are necessary to achieve the company's strategic goals and will result in improved operating results and greater shareholder value over the long term.

In support of the strategic goals discussed above, Matrix Service Company is changing its operating segments, effective this quarter. Historically, the company has reported 2 operating segments: Construction Services and Repair and Maintenance Services. This segmentation no longer fairly represents our strategy or the diversity of the markets in which we will be providing services over the next few years.

Going forward, the company will report 4 operating segments: Electrical Infrastructure, Oil Gas & Chemical, Storage Solutions and Industrial. These new operating segments are consistent with the company's current strategic focus and organizational structure and will provide greater transparency into the business.

The Electrical Infrastructure segment, which represents 20% to 25% of our business, primarily encompasses high-voltage electrical service to investor-owned utilities and construction and maintenance services in power generation facilities. High-voltage services include construction of new substations, existing substation upgrades, short-run transmission line installations, distribution upgrades and maintenance and storm restoration services. Construction and maintenance services are provided through a variety of power generation facilities, such as combined cycle plants, nuclear facilities, coal-fired power stations and renewable energy.

The Oil Gas & Chemical segment represents some 20% to 30% of our business volume and includes our traditional turnaround activities, plant services and capital construction work in the downstream petroleum industry. We provide similar services to chemical, alternative fuels and upstream gas and petroleum facilities. This segment also includes various industrial cleaning services, including hydroblasting and vacuum services.

The Storage Solutions segment, which accounts for 40% to 50% of our operations and includes new construction and maintenance services for crude and refined product, aboveground storage tanks and terminals. This segment also includes cryogenic storage vessels, such as LNG tanks, and other specialty vessels, such as spheres and bullets. All of our engineering and fabrication services related to the Storage Solutions will also be captured in this area.

The Industrial segment primarily represents start-up businesses and key growth sectors for Matrix Service Company and is currently around 5% of total revenues. Principally, this includes capital projects, maintenance and outages in the mining and metals industry. This segment also includes the engineering, procurement and construction of bulk material handling systems. Other services include equipment installation, millwrighting, instrumentation and control systems and mechanical construction in a number of end markets, including pharmaceutical, pulp and paper, food and beverage, aerospace and other industries.

These new reporting segments provide a better description of our business aligned with our vision for the future. Consistent with our strategic plan, Matrix Service Company will continue to invest in growth opportunities in order to deliver consistent performance and increased shareholder value.

On the operating side of the business, our refinery turnaround and maintenance activity in the Oil Gas & Chemical segment has enjoyed near-record volumes, and we're continuing to grow this business. In addition, the inclusion of industrial cleaning in this segment has improved our ability to cross-leverage these services.

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