Matrix Service (MTRX) Q4 2026 earnings call transcript

Welcome to MATRIX SERVICE CO's fourth quarter fiscal 2026 earnings call. Participants on today's call include Chief Executive Officer Sean Payne and Chief Financial Officer Kevin Kavanaugh. Following our prepared remarks, we will open the call up for questions. The presentation materials referred to during the webcast today can be found under Events and Presentations on the Investor Relations section of matrixservicecompany. com. As a reminder, on today's call, we may make various remarks about future expectations, plans, and prospects for MATRIX SERVICE CO company that 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 because of various factors, including those discussed in our most recent annual report on 4 and 10K and in subsequent filings made by the company with the SEC. The forward-looking statements made today are effective only as of today. To the extent we utilize non-GAAP measures, reconciliations will be provided in various press releases, periodic SEC filings, and on our website.

Before we get started, I want to share a project highlight that also illustrates our commitment to safety and quality. This is one of four air raises that MATRIX has safely completed in the last four months, each supporting infrastructure for different fuels and feedstocks, including LNG, ethane, liquid propane gas, ammonia, and butane. An air raise is a complex process that uses air pressure to safely lift and position a large steel dome roof, the weight of which can be well over 1 million pounds. This is a pivotal step in the construction of the storage tank. The project being highlighted here is for Dominion Energy's Brunswick-Greensville Storage Facility, which is a greenfield project for MATRIX and supports the Brunswick County and Greensville County power stations.

The project features a 25 million gallon full containment LNG storage tank, providing backup fuel supply for 700,000 businesses and homes. Projects like these are core to our mission of supporting major energy companies, advancing American infrastructure, and connecting U. S. energy to the world. The successful execution of these consecutive airlifts on complex high-profile projects highlights MATRIX's technical expertise, commitment to safety, and dedication to delivering exceptional outcomes for our clients and the communities that rely on these critical assets.

I will now turn the call over to Sean.

Thank you, Patrick. It is a privilege to address you as President and Chief Executive Officer of MATRIX SERVICE CO. I am grateful for the confidence of our Board of Directors and excited to lead the company into its next chapter. As I begin this role, I also want to recognize and thank our dedicated employees in the field and across our offices. Your commitment to safety, quality, and execution is the foundation of everything we do and the driving force behind our success. Throughout my 30-year career in the industrial engineering and construction industry, I've had the privilege of leading high-performing operations, project controls, and finance teams, helping deliver complex projects, improving organizational performance, and creating lasting value for customers and stakeholders.

Those experiences have given me a genuine understanding of what good looks like and a deep appreciation for the characteristics required to achieve it. They have reinforced my belief that sustainable success is built on exceptional people, a strong culture, operational excellence, customer focus, and an unwavering commitment to the safety and well-being of everyone involved. These are the very same characteristics that have defined MATRIX for decades and helped establish our reputation as a leading heavy industrial contractor that engineers, constructs, and maintains the critical infrastructure that supports industries and communities across North America. While those characteristics have shaped our history, they are equally important to our future and provide the foundation from which we will continue to grow and evolve.

As the needs of our clients continue to develop, we are evolving alongside them, expanding our capabilities, strengthening our expertise, and reinforcing our position as a trusted partner in the markets we serve. Today, our expertise, brand, and reputation provide a distinct advantage as many of our core and emerging markets are experiencing generational levels of investment.

But I want to recognize that while MATRIX has long been well-positioned to benefit from these opportunities, our past performance has not always reflected the strength of our capabilities or the opportunities before us. The company has yet to unlock its full potential, and we have more work to do.

In 2025, the board and executive leadership tasked me with bringing a fresh perspective to the organization. First, as president of engineering and construction, and then as chief operating officer. Together, with an enterprise-wide team, we established a strategic framework. Win, execute, deliver. This comprehensive business strategy addresses growth, revenue diversification, operational excellence, accountability, and organizational effectiveness, ultimately delivering sustainable profitability and value to our shareholders. More than just a list of goals or business as usual, this framework represents a deliberate shift towards a culture of consistent performance, excellence, and value creation. While we still have work to do, we've accomplished a lot in a relatively short period of time. Once our strategy was defined, we ensured the organization was properly sized and structured to support its successful execution.

Recognizing our overhead had been built to support a larger anticipated revenue base, we took decisive action to streamline and flatten the organization, establishing a more sustainable cost structure that increased our speed to market, While preserving our ability to capitalize on future growth opportunities. In parallel, we transformed our commercial organization by strengthening strategic account management, improving opportunity qualifications, aligning our business development operational resources around targeted markets, and focusing on opportunities that provide the best risk and reward profile for our business. With a clear strategy guiding our decisions, a transformed commercial focus, and an optimized call structure, we've built a stronger, more agile organization positioned to deliver consistent execution, profitable growth, and long-term value creation.

Today, every role and resource is aligned around our win, execute, and deliver strategic framework. Our progress is tangible, evidenced by our return to profitability in the third and fourth quarters of fiscal 2026. And looking forward, our strategy is straightforward, win the right work, execute with excellence, and deliver the results expected by our customers, employees, and shareholders. Each pillar plays a critical role in strengthening our business and creating long-term value. To provide greater context around our progress, I would like to highlight several key initiatives within each pillar.

First, our WIND strategy is centered on pursuing opportunities that align with our capabilities, meet our risk parameters, and create the greatest potential for profitable growth. This includes expanding our presence in both legacy and selected new and re-emerging markets, growing our geographic reach, expanding our construction-only services, and strengthening our relationships with existing customers, as well as increasing new customer acquisitions. Market intelligence and client insight continue to support strong demand across our traditional LNG and NGL infrastructure markets particularly for peak shaving facilities backup fuel terminals and related infrastructure In fact over 40 of our current opportunity pipeline is comprised of LNG and NGL projects Another example of our wind strategy at work and our legacy markets is a project for which we have been selected subsequent to the quarter, which we announced by press release after market close yesterday.

This project is for the front-end engineering and design of the storage tank farm for the America First Refining Facility in Brownsville, Texas, the first new major refinery to be constructed in the U. S. in more than 50 years. We are extremely proud to have been selected to complete this major step for AFR in reaching financial investment decision. At the same time, we are actively pursuing opportunities being driven by new and re-emerging markets, such as power generation and related infrastructure investments, that is driven by the rapid growth of data centers, aging power infrastructure, and the increasing domestic electricity demand. Specific to data centers, our ability to deliver power infrastructure and substation solutions that support our customers' expanding energy requirements is critical.

For example, evidence of our wind strategy at work in this end market includes two recently completed substation projects to bring more power to the Northern Virginia Data Center Alley. We are currently on site constructing additional substations in the same geographical area as well as the Eastern Pennsylvania region. Another example of us leveraging our experience to participate in reemerging markets is our focus on the mining and mineral sector, Where increased commodity pricing and the demand for critical minerals essential to energy, technology, defense, and AI infrastructure continues to grow. To support our position in this market, we have invested additional capital and resources into our existing Southwest operation.

As a result, we have received and have mobilized on a significant award, which was taken into backlog in the fourth quarter. Beyond our market focus, we are also heavily focused on expanding our geographic reach across key strategic regions and pursuing more construction-only opportunities. As a result of our construction-only initiative, we have received several balance plan awards across the organization in the fourth quarter.

At the same time, our improved strategic account management approach enables us to strengthen relationships with key customers while expanding our presence among new clients. This reinforces our position as a trusted long-term partner across multiple service offerings and project life cycles. Collectively, these initiatives with our improved speed to market and lower cost structure will strengthen our backlog, expand our market share, diversify our revenue stream, and drive sustainable, profitable, organic growth. The execution pillar is where our reputation is earned and trust is built. That trust depends on our ability to deliver high-quality projects safely, on time, and on budget. Like our win strategy, our execute strategy is built around many initiatives, 45 in this case. These initiatives were developed to strengthen project delivery and drive consistent operational excellence across the organization.

Each initiative is supported by dedicated teams with clear accountability for solution development, implementation, and results. These initiatives focus on improving proposal and contracting discipline, enhancing engineering and construction processes, strengthening our safety culture and protocols, advancing change management practices, and reinforcing quality management systems. Collectively, these efforts are intended to improve project outcomes and reduce execution risk. During the year, we also completed the final phase of our enterprise services transformation by transitioning project controls and proposal delivery into the organization.

These were the last remaining service-related functions that had not yet been centralized. With this transformation now complete, our shared services organization operating under dedicated leadership is focused on delivering consistent support, improving resource efficiency, and driving continuous improvement across the company. By bringing greater discipline and standardization to critical business processes, this structure allows our operations teams to concentrate on what they do best, winning the right work, executing projects with excellence, and delivering successful outcomes for our customers. The changes we are implementing extend accountability across the entire organization, with a sharp focus on execution, performance, and delivery measurable outcomes. No function is exempt. Our entire enterprise is focused on execution and measurable results.

Moving on to the third pillar, deliver. We are committed to delivering consistent results and sustainable value. Our operational strategies and focused capital deployment create a resilient, future-ready enterprise. Already, we have reduced SG&A expenses by 11% year-over-year and driven improvements in operating performance. These are not isolated actions. They are evidence of a company committed to change, discipline, and results. Overall, our strategic framework ensures we are aligned around a common purpose, focused on both organic and targeted, inquisitive growth, and executing consistently across the enterprise.

As we enter this next phase, we do so from a position of financial strength, supported by a healthy balance sheet, robust liquidity, and no debt. The actions we have taken have strengthened our foundation, enhanced our ability to pursue profitable growth, and positioned MATRIX to create sustainable long-term value for our shareholders, customers, employees, and the communities we serve.

On behalf of the entire MATRIX team, we look forward to earning your trust and support as we build on our legacy and pursue the opportunities ahead. I will now turn the call over to Kevin Kavanaugh.

Thank you, Sean. Before I get into the fourth quarter, I want to highlight a few ways this strategic framework is already having a positive impact. Successful execution of our backlog allowed us to achieve 14% revenue growth and a 210 basis point gross margin improvement in fiscal 2026. We have successfully leveraged our experience and reputation to reenter the mining and mineral space as demonstrated by a significant project taken into backlog this quarter.

Our focus on flattening our organizational structure to achieve greater efficiency and effectiveness contributed to a decrease in SG&A expenses, which fell by $7.6 million in fiscal 2026 compared to fiscal 2025. As a result of these efforts, we returned to profitability this year with full year adjusted EPS of $0.26 and an increase of $1.19 compared to last year.

Now to the quarter. Our results represented a good finish to fiscal 2026, as well as positive indicators of the opportunity ahead. In the fourth quarter, our revenue increased 13% to $244.5 million compared to $216.4 million in the fourth quarter of fiscal 2025. The increase in the quarter was expected and driven by the storage and terminal solutions segment, partially offset by lower revenue in the process and industrial facilities segment. Gross profit increased 140% to $19.5 million compared to $8.1 million in the prior year quarter. The quarter gross margin was 8% compared to 3.8% in the prior year. While SG&A in the fourth quarter was impacted by higher variable compensation costs related to returning to profitable performance, SG&A still decreased to $16.9 million in the fourth quarter versus $17.6 million last year.

The lower SG&A cost, combined with the higher revenue, allowed SG&A as a percent of revenue to decrease to 6.9% compared to 8.1% in the same period last year.

The company also incurred $3.4 million of restructuring costs in the fourth quarter associated with executive transitions and previously announced corporate realignment. The company continued to generate interest income On the company strong cash position Interest income was million in the quarter compared to million in the prior year quarter Bottom line the company produced EPS of in the quarter compared to a loss in the prior year Adjusted EPS which excludes restructuring was a positive in the fourth quarter versus a loss in the prior year quarter The adjusted EBITDA was also improved to $6.3 million in the fourth quarter, compared to a $4.8 million loss in the prior year fourth quarter.

Moving to the segments, storage and thermal solutions segment revenue increased 43% to $137.4 million in the fourth quarter of fiscal 2026, compared to $96.1 million last year due to an increased volume of work for specialty vessel and LNG storage projects. The gross margin in the fourth quarter of fiscal 2026 was 6.4% compared to a negative 1.1% in the prior year quarter, which was impacted by lowered recovery expectations on a legacy project completed in fiscal 2021 that was in arbitration. The matter was fully resolved in fiscal 2026. In utility and power infrastructure, segment revenue was $73.5 million in the fourth quarter compared to $73 million in the same period a year ago.

Gross margin improved to 12.8% in the fourth quarter compared to 9.1% last year. The increase was due to strong project execution. And process industrial facilities segment revenue decreased to $33.6 million in the fourth quarter compared to $47.3 million last year. Primarily due to lower revenue from refinery work. Due to a change in mix of work, grace margin was 2.9% in the fourth quarter of fiscal 2026 compared to 5.9% last year.

Now let's discuss backlog. Project award activity was mixed in the fourth quarter with total awards of $169 million for a 0.7 book-to-bill. The processing industrial facilities segment had a strong fourth quarter with awards of $108 million, including a significant mining-related project, resulting in a book-to-bill of $3.2 million.

Fourth quarter award activity in the other two segments was modest. The company ended the quarter with backlogging of $953 million. The year-end backlog level is supportive of strong revenue performance as we move into fiscal 2027, and we are heavily focused on the awards that are required to maintain strong revenue through the back half of fiscal 2027 and to build a strong foundation for fiscal 2028. As previously mentioned, our markets are strong throughout the business as evidenced by the opportunity funnel, which is over $7 billion.

Moving to the balance sheet, we ended the quarter with total liquidity of $283.9 million. Liquidity is comprised of $223 million of unrescited cash and cash equivalents and $60.9 million of borrowing availability under the credit facility. The company continues to have $25 million of restricted cash to support the credit facility and has no outstanding debt as of the end of the quarter. While the company expects to utilize cash in the first half of fiscal 2027 to support current project activities, we enter the year in a strong financial position that provides the liquidity needed to support the execution of our backlog and to deploy capital toward growth. Based on the strength of our balance sheet and our return to profitability, we are actively evaluating a stock buyback.

With that, I will turn the call back to Sean for additional comments.

Thank you, Kevin. Before we open up the call for questions, I'd like to take a moment to recognize Kevin Cavanaugh, who will be transitioning from his role as Chief Financial Officer at the end of the week. Kevin joined MATRIX in 2003 and has been an integral part of our success for more than 23 years, including the last 15 years as our Chief Financial Officer.

Throughout his tenure, Kevin helped guide MATRIX through significant industry cycles, evolving regulatory requirements, and major strategic initiatives. His leadership played an important role in strengthening our financial discipline, enhancing our reporting and control processes, and helping position the company for long-term success. On behalf of the Board of Directors and everyone at MATRIX, I want to thank Kevin for his many contributions to the company.

On a personal level, I'm grateful for his partnership and support over the years and have always valued his expertise, thoughtful perspective, and commitment to MATRIX. We wish Kevin and his family all the best in the next chapter.

Regarding our CFO search, we have been conducting a thorough process over the past several months to identify the right long-term financial leader for MATRIX. We continue to make good progress and remain committed to finding the best candidate to join me in Houston to drive the company's next phase of growth. While we are being deliberate and patient in that process, AJ Smith has been appointed as the interim chief financial officer effective September 10, 2026. AJ has been serving as senior director of accounting and treasury overseeing our accounting, SEC reporting, and treasury functions. His deep knowledge of the business and strong leadership make him well positioned to support the organization during this transition. As we search for our next chief financial officer, we believe it is important that a successful candidate have the opportunity to become familiar with the business and our strategy.

As a result, we will not be providing guidance at this time. Once our next CFO is onboarded and has had the opportunity to assess the business, we will evaluate our approach going forward.

With that, I would like to open the call for questions.

Yeah, John, in the last 18 months, we've made measurable progress, right, getting that to where we think it needed to be, not just from a cost perspective, but also from an efficiency and a focus perspective. So today, I feel like we've really got it where we need to be. Maybe there could be some future tweaking, but right now I'm satisfied that we've got the right organization, the right size to do the work that we have today as well as what we've got in our growth plans.

So, John, this is Kevin. Enjoyed working with you, too. So, I think when you look at the restructuring, you're not going to see anywhere near that level. There may be a few things that will flow through, but it would be relatively insignificant. And, you know, as Sean said, there may be some tweaks with the organization, but over the last 18 months, we've implemented, you know, the majority of the The changes we plan on doing right now. So I would not expect that restructuring to be significant. There will be something, but it won't be major.

Yeah so I would say this John So one we not surprised by the latter bookings and the activity over the last few years Certainly don want that to overshadow the opportunities that we have in the pipeline All of these projects have their different time to wind up you know going from you know the early process of a feed or a permitting process Good news is a lot of that hasn changed for us We knew this was going to look that way for a while As far as the exact numbers on the backlog that we have in hand, certainly in the first quarter, second quarter, and third quarter, we'll be getting through a fair share of the larger projects that we've been carrying.

But, again, we've got – our outlook is to start replacing that with new projects.

Yeah, I don't have the exact number in front of me, but I think 70-80% of that backlog will be worked off during fiscal 2027.

Well, so the margin profile of our backlog is in line with our double-digit level performance. I think we've made a big move in revenue in 4Q, and that helped under recovery. There's still a little bit more work to do there. But our projects are delivering close to that double-digit level now. And I think when you look at the quality of the backlog plus the quality of opportunities in the funnel, I think they'll continue to support that.

And, you know, obviously we want to continue to grow that margin, you know, above 10 percent. As we move forward, I think we've probably got the markets to do that.

Yeah, I guess first I'd say I probably won't want to talk too much about the specifics of the dollar value as this has not gone through FID yet. Obviously, it's a very large project on any scale. Just to give you a little bit of background on kind of what we're doing there in the timeline. So we've been awarded, we've been contracted the feed, and that is due at We will look at the end of our fiscal Q2, at which point when we turn that over to the client, they will look to finalize FID. At that time, we will work to convert that feed estimate to a lump sum price, utilizing an open book process with the client.

We anticipate that the award will be in late fiscal Q3 or early Q4, but I think it's worth mentioning here that it is possible that we could start some early purchasing and or site work prior to calendar year-end to support the client's desired schedule.

So the utilization for the cash is primarily going to be the projects that are being executed in the field that we've got advanced payments on. This cost here, we haven't worked out exactly what that will look like, but we always look to maintain a net depositive cash position on any of the work that we're doing, and we'll certainly do that for this.

Yeah, so just to be clear, it is in our opportunity pipeline. We've been pursuing this effort and working closely with a client for several years on this, developing this. But to your point, yes, we do not have anything outside of the feed work booked right now and within our backlog. And that would be something we'd be looking to convert, again, late Q3 or early Q4 to backlog.

Yes, that's accurate. That's what we see happening.

That's correct. You wouldn't expect anything significant. I mean, you might have a quarter that has a couple hundred thousand. But no, the big changes have been implemented late in fiscal 25 and in fiscal 26.

Thank you. Appreciate it.

Great. Thank you, everyone, for your participation. Before we close the call, I wanted to mention that we will be presenting at the upcoming 25th Annual Diversified Industrials and Services Conference in Nashville, Tennessee. If you will be attending, we would welcome the opportunity to connect with you. Thank you, ladies and gentlemen. That concludes today's presentation. We thank you for your participation. You may now disconnect and have a wonderful day.