Thomas Long - Chief Financial Officer, Vice President and Secretary Michael Bradley - Chief Executive Officer, President and Executive Director

Richard Wesolowski - Sidoti & Company, LLC Tahira Afzal - KeyBanc Capital Markets Inc. Fred Buonocore - CJS Securities, Inc. Matt Duncan - Stephens Inc. Martin Malloy - Johnson Rice & Company, L.L.C.

Greetings, and welcome to the Matrix Service Co. Third Quarter Fiscal Year 2010 Results Call. [Operator Instructions] It is now my pleasure to introduce your host, Thomas Long, CFO for Matrix Service Co. Thank you, Mr. Long. You may begin.

Thank you, Christine, and good morning, everyone. I'd like to just 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 the purpose 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 last fiscal year and in subsequent filings made by the company with the SEC. I'll now turn the call over to Mike Bradley, President and CEO.

Thank you, Tom, and good morning, everyone. We appreciate you joining us today to discuss our recently completed third quarter of fiscal 2010. Before I turn the call back to Tom to review the financial results, I will discuss the operating performance and outlook for the company. This morning, we announced our earnings for the quarter, excluding non-routine charges, of $0.10 per fully diluted share which were below our expectations. The primary driver impacting our third quarter results the much lower volume of recurring repair and maintenance activity than we had expected. As stated in our April 23 press release, we had anticipated that business activity would pick up in the second half of the fiscal year. While earnings for the first half of fiscal 2010 were in line with our plan, our clients are still experiencing a challenging economic environment which had resulted in continued delays of capital projects and lower repair and maintenance spending. We see this continued into the fourth quarter which coupled with a very competitive environment, has resulted in a reduction to our EPS guidance for the fiscal year to $0.55 to $0.65 per fully diluted share. This guidance excludes the impact of non-routine charges related to acquired claim receivables and other legal matters. Having said that though, we remain confident in our long-term strategy and believe our strong balance sheet has positioned the company to grow as our markets improve. As I will discuss in a few minutes, we are seeing more encouraging signs as we move into our fiscal 2011. Additionally, as we announced in the April 23 press release, we continue to manage the company's cost structure in response to the challenging economic environment. In addition to previously reduced administrative costs at $6 million per year, the company took difficult but necessary actions during the third quarter to further reduce overhead costs. We expect the third quarter cost reductions to total $6 million annually. Our plan going forward is to maintain an appropriate cost structure and level of talent to ensure we execute our projects safely and effectively and allow us to grow and expand our business both domestically and internationally. Despite the challenging environment, we are pleased with the performance of the Matrix team and remain optimistic about our growth prospects. Project execution continues to be strong and safety performance is excellent. As I mentioned earlier, the company's financial position remains strong with over $50 million in cash, positive cash flow and no bank debt. We have added bonding capacity to grow our backlog and are encouraged by numerous opportunities across our markets. Many of these opportunities are the result of our expanded and diversified capability gained through recent acquisitions and additions of business development and project personnel. Our project funnel continues to grow and we're attracting several billion dollars of projects. Overall, the bid activity remains strong with opportunities in power, electrical instrumentation, Aboveground Storage Tanks and terminals and alternative energy. While recent awards have been slow to develop, we believe that project awards will increase as we move into fiscal year 2011 based on client indication. Regarding backlog, our backlog declined by $22 million in the third quarter. However, we did sign two contracts totaling $40 million shortly after the end of the quarter which we had expected to be in our March 31 backlog. One of that contracts, the thermal vacuum chamber was announced this morning in a separate news release and demonstrates our continued diversification efforts and our ability to leverage our engineering capabilities. The other contract is a multiple tank package in our Aboveground Storage Tank business. We have received several letters of intent and verbal awards on additional projects. The recent contracts and favorable indications of project awards lead us to be more optimistic about our backlog going forward. Looking ahead, we remain excited about our future and believe Matrix is well-positioned to grow as the economy improves. Our expanded engineering and construction capabilities have enabled us to pursue a broader range of turnkey terminal, high voltage power, industrial and renewable energy projects. Our increased scope of engineering has provided the opportunity to perform front-end engineering and design studies. We are now capable of self-performing a larger scope of engineering procurements, fabrications, constructions and E&I services which has expanded our client base both domestically and internationally. We believe our continued emphasis on strengthening our business development efforts will lead to an even broader range of project opportunities. Our operations outside of the U.S. are gaining traction. Annual revenues in Canada have more than doubled since fiscal 2008 and we have a number of encouraging opportunities. We continue to pursue international expansion in select countries, but we focus on turnaround specialty, steel plate structures projects. We have a dedicated team in place assessing geographic markets, identifying viable opportunities and currently, bidding projects. We have seen an increase in bid activity on smaller Aboveground Storage Tank projects, with larger projects emerging and several projects in active negotiations. The Repair and Maintenance business, however, remains challenging and highly competitive, although inquiries are beginning to pick up a little. The timing of awards in the Downstream Petroleum market remain uncertain as refiners continue to be cautious with their capital spending and new environmental regulations remain unclear. However, we are seeing some positive indications that this market is improving based on projects emerging in our bid front. The fiscal 2011 outlook for the turnaround business is looking more favorable and our expanding capabilities and solid project execution allow us to pursue a broader scope of turnaround projects. As previously stated, our E&I business is expanding with a strong long-term outlook. Our E&I backlog is growing and we are pursuing numerous opportunities in this market. For example, our backlog increased quarter-over-quarter and is up over 80% from the beginning of the fiscal year. The combined capabilities of S.M. Electric and our legacy E&I business have allowed us to expand our geographic reach and customer base. We are also developing contract of choice relationships with several customers. Our expanded E&I capabilities will allow us to capitalize on the expansion improvement of high-voltage infrastructure and capture renewable energy projects which require the design and construction of new power delivery systems. As we look forward, we remain committed to the growth of our core AST and Downstream Petroleum businesses in North America. Additionally, our strength and capabilities in engineering procurement, fabrication and construction for AST and terminals have positioned us to move into select international markets. We continue to leverage our capabilities to further diversify and expand our power, E&I, Specialty Structure, renewable energy and industrial construction. The added engineering and construction capabilities enable us to execute large scale turnkey projects, complex steel plate structure projects and alternative energy projects. We continue to take a disciplined long-term approach to our business and remain selective on project pursuits. We are committed to a strong safety culture and high-quality project execution for our clients. Our financial strength capabilities and talent position us to grow our business as market conditions improve. While we remain cautious in the near term, as reflected in our earnings guidance, we are encouraged at what see developing as we move into fiscal year 2011. And now, I'll turn the call over to Tom to discuss our financial results.

Thanks, Mike. In the third quarter, net income was $0.1 million on total revenues of $122 million. Third quarter operating results included non-routine charges of $0.10 per fully diluted share related to write-offs of $2.9 million on acquired claim receivables, a charge of $0.7 million related to a legal matter and a charge of $0.6 million related to collection costs on claims acquired in a recent acquisition. While we do not discuss the specifics of any collections or legal matters, the significance of the charge is already important to understanding our results for the quarter. Quarterly revenues for Construction Services were $76 million as compared to $80 million in the third quarter last year. Repair and Maintenance Services revenues were $46 million this quarter, compared to $66 million in the prior year. As Mike discussed, revenues for both of our segments continue to be negatively impacted by the economic downturn which has slow capital spending and impacted the timing of scope and maintenance in construction work in the markets we serve. Consolidated gross profit was $13 million in the quarter versus $18 million in the third quarter last year. While we have maintained effective project execution, our gross margins decreased due to lower business volume, lower direct margins and a non-routine charge related to a legal matter. Our gross margins were 10.9% in the quarter as compared to 12.3% a year earlier. Consolidated SG&A was $13 million this quarter compared to $11 million for the prior year. The change in the SG&A expense is due to current period write-offs of $2.9 million from the acquired claim receivables and a charge related to the collection cost on the claims acquired in a recent acquisition of $0.6 million, partially offset by cost reductions. For the nine months, net income was $9 million or $0.34 per fully diluted share on total revenues of $410 million. The nine-month operating results included non-routine charges of $0.15 per fully diluted share related to write-offs of $2.9 million on acquired claims receivables and a charge of $2 million related to a legal matter and a charge of $1.5 million related to collection costs on claims acquired in a recent acquisitions. This compares to nine months prior year results, which revenues of $510 million and net income of $24 million or $0.90 per fully diluted share. As Mike mentioned, our liquidity and financial position remain strong. Since the end of fiscal 2009, we have increased our cash position by $18 million to $53 million; and we have not borrowed against our $75 million revolving credit facility during the fiscal year. Capital expenditures for the nine months were $4 million, and we now forecast capital spending for the year to be approximately $6 million. And with that, we'll open the call up for questions.

[Operator Instructions] Our first question comes from the line of Rich Wesolowski of Sidoti & Co. Richard Wesolowski - Sidoti & Company, LLC: Which of your end markets or customer groups would you expect to be the first to award new work or a stream of new work and conversely, which would you expect to be the last to revive their spending?

That's a good question. Regarding the electrical instrumentation business, as I stated, our backlog has grown quarter-over-quarter since the beginning of our fiscal year. And we continue to see very good opportunities in that market. Also as I mentioned, we're starting to see more activity in the Aboveground Storage Tank business. So at this point in time, we are expecting that to pick up. I think the Downstream Petroleum business on the capital side remains a little slow but as I also stated, we're starting to see much more encouraging activity for our fiscal 2011 turnaround activity. We are starting to see some other power projects coming to the fold and we also see numerous alternative energy projects that range from wind to biofuel to geothermal to solar. I think those have always been slow to develop but we do see several now that we have been actually pursuing. Richard Wesolowski - Sidoti & Company, LLC: And number two, are you approaching a level of backlog at which you would be forced to turn aggressive in bidding with your margins in order to keep some of your more valued personnel in the field, if some of these customer groups delay spending for a few more quarters?

We view our current backlog and again, I mentioned we booked $40 million right after the end of the quarter which should not show up in the third quarter results. But we currently view ourselves as appropriate from a cost-structure standpoint, a talent-based standpoint, with the backlog we have in place and with what we see developing.

Our next question comes from the line of Matt Duncan of Stephens Inc. Matt Duncan - Stephens Inc.: The first question I've got is, how did the weather impact you guys this quarter? Obviously, you're playing outdoor sports and I would think that the weather has negatively impact your business this quarter. Can you give us any sense in terms of both revenue and margins, what the impact was?

Matt, we don't have a precise number on that and we've really haven't included that as adverse impact for the quarter. Although we do a lot of work in the Northeast and the West Coast and with heavy rains and numerous snowstorms. So did it have any impact? Yes, but we don't have a precise number on that. Matt Duncan - Stephens Inc.: And then, Mike, when you look at, I guess you said you guys have reached some verbal agreements and some LOIs for additional contracts, I would assume that those are not in backlog until you sign the contract. Can you talk about sort of how much revenue those situations would represent if you were to be able to get those contracts signed up in any of those projects?

Number one, you're correct is we do not put anything in the backlog until we have signed a contract. I would say that some of the projects that we are in discussions with are material in size and we're very encouraged. Matt Duncan - Stephens Inc.: And then what types of projects -- is this really a kind of across all of your different businesses or is there any one category that maybe overrepresented?

It's really spread out at this point in time. I think what we're seeing is more activity in terminals and in storage than we have seen so that's encouraging. But we also have some other projects that are outside of the AST business that look promising as well. And that would be of material size. Matt Duncan - Stephens Inc.: And then as far as the Tesoro incident. My understanding is that you guys had been working on the turnaround project there at the Tesoro facility at Pacific Northwest that had an explosion recently. Did you work on the unit where the incident occurred?

Well, I think number one, Matt, I think given the situation and the investigation going on, it's not appropriate for us to comment on Tesoro’s, what's going on there. What I can say is that we have done work in the Tesoro Refinery. We continue to do work in there. And we will obviously cooperate in any way with the investigation as it proceeds. Matt Duncan - Stephens Inc.: With regard to your balance sheet. Obviously, you guys still have a strong balance sheet, strong cash position. Talk about just sort of how you balance out your thoughts between acquisitions and the stock buybacks. Your stock is awfully cheap here, in our opinion. And just trying to get a sense for how you think about a stock buyback versus acquisitions right here with your cash?

Well, we continue to look pretty active on some acquisition opportunities right now, Matt. Obviously, our stock is cheap and we have to factor that in, in terms of how we use our cash as well. We did not buy back any stock in the quarter, but again, we're taking a balanced look at the best way to utilize our cash and increase shareholder value.

Our next question comes from the line of Michael Harrison of First Analysis.

I was wondering if you could give us an update on getting the N stamp certification.

Sure. That process is moving well and we do expect to have that finalized by the end of our fiscal year. So everything is moving along as we expected.

And is it a situation where you can pursue nuclear projects before you have that certification? And you just can't sign anything? Or do you kind of have to wait to pursue until you have the stamp in place?

We can discuss, but we really -- until we get the final N stamp, there's really nothing we could sign, but again, we're pretty encouraged, so.

And then the other question I had is related to the thermal vacuum chamber contract. I was wondering if you could talk about how that's structured, the contract itself. And what the risks might be as you see them?

In terms of the type of contract we have. I mean, Matrix is the overall general contractor on this particular project. DynaVac is a partner-in-sub with us. I think that in terms of the risks of this project, both the engineering group that we acquired through CB&I a little over a year ago, plus some of the people that we have already in the organization have experience in design and construction of these facilities, so we don't see any unusual risks associated with that.

Our next question comes from the line of Fred Buonocore of CJS Securities. Fred Buonocore - CJS Securities, Inc.: First question relates to where you're starting to see pickup and better signs of life in the Aboveground Storage market? Can you point to anything particular that going on for your customers in that area that may be driving such a pickup? And kind of what we can look at in the macro picture? Or look at what your customers that may help us understand that momentum's going to continue to improve for you?

Sure. I can give you some high-level perspectives on that. I think first of all, we see a lot more activity or discussions on import terminals and expansion of import terminals. I think with the continued progress with moving some of the Canadian crew into the U.S. it’s creating opportunities or the need for additional storage. Again, as you get different blending requirements, particularly with ethanol, creates some opportunities for storage. So I think in general, it's just revisiting some little more activity that we're encouraged about there. Fred Buonocore - CJS Securities, Inc.: And then on the backlog. How do you look at it in terms of maybe timing, as to when you think, based on what you're seeing, based on the two contracts you just signed? Or subsequent to the end of the quarter? As well as these LOIs and other indications that you're getting? Do you think backlog may have bottomed? And can start going up? Or do you think that we have a little bit more to go downward?

I think that our expectation going into Q3 was that our backlog would increase, again, based on the discussions. And as we stated, the $40 million project occurred right after the end of the quarter, and we anticipate those being in. And so that was kind of factored into our thought process that backlog would have increased in Q3. We're seeing -- it's hard to predict the timing on some of these, but we kind of view right now that Q3 was a trough. Fred Buonocore - CJS Securities, Inc.: Then on gross margin. You talked about your expanding capabilities, both what you've developed organically and through the acquisitions that you made, enabling you to self-perform more aspects of the project that you're working on. Do you view that as over time having some sort of beneficial impact on your margins? So that maybe over the next couple of years you could reach all-time high margin levels?

Well, I think a couple of things is, one, is that will position us very well to expand the scope and scale of projects that we take on. And I think that it will definitely help support strong margins going forward. I would say right now, the biggest challenge in our margins is two things. One is just the really turndown in repair and maintenance business, right now, is much lower than we expected. And we continue to carry a level of overhead that is under-absorbed. And we're doing that consciously, again, based on what we see going forward. I think the other thing that's impacting our gross margins today is there is very little emergency work. And you still have a very, very competitive environment in the repair and maintenance business. So I think those are really the factors impacting our margins. But I think the positioning on the EPC side of the business is going to help us a lot going forward in terms of growing and expanding our business. Fred Buonocore - CJS Securities, Inc.: And then just a quick one for Tom. Was the legal charge related to one segment or another?

As far as the legal charge, it's really more tied in with the Repair and Maintenance, specifically in the Construction overhead.

[Operator Instructions] Our next question comes from the line of Martin Malloy of Johnson Rice. Martin Malloy - Johnson Rice & Company, L.L.C.: I wanted to talk a little bit about some of the international opportunities. And you said that Canada has doubled since 2008 in revenues. So what level, roughly, has it doubled on an annual basis?

Today, it's starting to exceed 5% of our revenues. So we're still small, but it's from zero. So we're encouraged by that and seeing some good opportunities. Martin Malloy - Johnson Rice & Company, L.L.C.: And on the Latin American, South American side. Can you give us an update on opportunities and the bidding environment down there? And maybe the size of some of the top things you're pursuing?

The size of the opportunities are really varied at this point in time. Some of the bidding -- we're really targeting a project size that we believe that Matrix can be competitive as well as generate decent gross margins. And what we see on the very large-scale projects, the competition is pretty strong. On small-scale projects, the few million dollars, $4 million to $5 million, there's a lot of competition out there. So we're trying to find that sweet spot that fits us as well. And we see, again, we're tracking several opportunities and actually bidding on a few, as we speak.

Our next question comes from the line of Tahira Afzal of KeyBanc Capital Markets. Tahira Afzal - KeyBanc Capital Markets Inc.: We talked about the storage tank projects and some of your large projects being in the pipeline and how they have got deferred in the past and it seems now they’re finally being released. In terms of the drivers for the release that you discussed previously and what you think might be leading to the release. Is it a sense that customers feel commodity prices are bottoming? Or do you think it's more so just an improvement in the macroeconomic outlook?

I think it's probably a combination of things. I think one, an improvement in the economic conditions but also of the balance sheet. And a lot of clients today have much improved from where they were a year ago. So I think that the financing has opened up with crude oil back up from where it was a year ago. I think everybody's really taking a long-term view and again, as I mentioned, with some of the pipelines and expansions in terms of moving more crude, is creating opportunities to expand storage. And I also think that a lot of the projects that we are seeing today open up and have been in the pipeline for some time. And so when we put together our view really before the end of the calendar year, we had anticipated some of these projects, really getting released after the first year but they continue to be delayed. So I think we're starting to see some of those projects get released and as I mentioned, we got a pretty sizable storage project right after the end of the quarter. Tahira Afzal - KeyBanc Capital Markets Inc.: Most of my questions have been answered but I just have one other question and that was in regards to the processing out there. As you go out to procure some of the more costly items and materials for yourselves and as you look at the label costs on the grounding side et cetera, any color on how those are trending now and what your outlook is at this point versus the quarter at the beginning of the year?

I think in terms of steel prices, we have continued to see increases in steel prices. As we stated before, we don't speculate on material prices and if we book a job, we either buy the steel immediately or we have some sort of escalation cost, but we have seen steel prices raise. Labor, I've just mentioned general on the construction industry right now and engineering business, it's still pretty soft so we haven't seen any uptakes in that regard. Tahira Afzal - KeyBanc Capital Markets Inc.: Just to follow up on that, as the oil sands projects ramp up and potentially on that, you have an overlay of perhaps a nuclear cycle which is a little more far out. It seems like the feedback I'm hearing is that the cost of welders would potentially go up. And we’d love to get a sense of the longer-term as that happens, does that help you or hurt you in terms of your revenues and then your general profitability?

I think as comps go up, obviously that impacts revenue. I think that we've been very careful on lump sum projects to avoid long-term projects, where we don't have protection on escalation because as you know, if the market turns and activity picks up, there will be some escalation. So we try to manage our projects such as that we manage of risk of escalation in labor and material. But again as costs go up, revenues go up and we saw that happen a couple of years ago.

Our next question is a follow-up question from Richard Wesolowski of Sidoti & Co. Richard Wesolowski - Sidoti & Company, LLC: As I read about various quarters of the energy infrastructure market, U.S. natural gas transmission distribution comes up again and again; it's a big growth area and I know you do some of this work but you still seem to keep it in the back burner. Am I right in thinking the build out of the U.S. nat. gas infrastructure is a big opportunity for Matrix and if so, could you comment on the timing of construction work for gas process being compression facilities, et cetera?

Yes, we see it as a long-term big opportunity for Matrix. And we have been discussing with potential clients, looking at opportunities relative to that. So Rich, we're definitely not ignoring it and we see it as a potential big opportunity for Matrix going forward. Richard Wesolowski - Sidoti & Company, LLC: And I gather you would sense that some of the E&I work, some of the AST work, some of that maybe grabbing the headlines for your company before the natural gas would?

I think that's a fair statement.

[Operator Instructions] There are no further questions in the queue at this time. I would now like to turn the floor back over to management for closing comments.

Well again, I appreciate everybody joining us on the call this morning, and I think that we've stated that even though the markets and customers are still experiencing the effects of recession, our financial position is strong and does not limit our ability to pursue new awards or execute projects safely and effectively. We feel like we have excellent catalog and capabilities within the Matrix team, and we are still very excited about our long-term strategy and look forward to building on our business as we go forward. So with that, everybody have a good day and thanks again for joining us.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.