Welcome to the Matrix Service Company Conference Call to discuss results for the Q1 fiscal 2023. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer I would now like to hand the conference over to your speaker for today, Kelly Smythe. You may begin.
Thank you. Good morning, and welcome to Matrix Service Company's Q1 fiscal 2023 earnings call. Participants on today's call will include John Hewitt, President and Chief Executive Officer and Kevin Kavanaugh, Vice President and Chief Financial Officer. The presentation materials we will be referring to during the webcast today can be found under Events and Presentations on the Investor Relations section of matrixservicecompany.com. Before we begin, please let me remind you that on today's call, we may make various remarks about future expectations, Plans and prospects from Matrix Service Company that constitute forward looking statements for the 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 most recent annual report on Form 10 ks and in subsequent filings made by the company with the SEC. To the extent we utilize non GAAP measures, reconciliations will be provided in various press releases, periodic SEC filings and on our website. I will turn the call over to John Hewitt, President and CEO of Matrix Service Company.
Thank you, Kelly, and good morning, everyone, and thank you for joining us. Today is the day the United States is holding its midterm elections. Let's remember that voting is a right not afforded to so many people elsewhere in the world. Regardless of your party affiliation, get out and vote. Make your voice heard.
This coming Friday, November 11, is also Veterans Day in the U. S. And Remembrance Day in Canada, Australia and elsewhere. It's a day that has been set aside since the end of the 1st World War To honor our military veterans and give thanks for their willingness to sacrifice for the common good. I like to thank the men and women of our military for their dedication and commitment to keeping us all safe.
Now to our business update. During our last earnings call, we spent substantial time reviewing the key macro drivers to our markets as well as our project opportunity pipeline and confidence in our strategy and Outlook for the future. We also stated that we expected to see a significant near term uptick in project awards. I'm pleased to report that our expectations are unfolding as reflected in awards of $235,000,000 in our Q1, Which resulted in a book to bill of 1.1 and in the month of October, we have already received awards of 150,000,000 Project awards in the Q1 was the 2nd highest we have achieved in the last 8 quarters and backlog is the highest it has been in over 2 years. In storage and thermal solutions, where we are seeing the largest individual opportunities, our Q1 book to bill was 1.7 On awards of $132,000,000 Included in these awards is a large scale specialty vessel for a long standing client.
In our Utility and Power Infrastructure segment, our book to bill was a 0.9 on awards of $43,000,000 the majority of which is for electrical infrastructure work. Finally, in Process and Industrial Facilities, our book to bill was 0.7 on awards of 60,000,000 Among the projects received during the month of October are 2 large capital awards. These projects, which will be included in our 2nd quarter backlog, include A second large scale specialty vessel of similar size and scope is that received in the Q1 and the upgrade of an existing LNG peak shaving These projects, which are only a portion of the awards expected in the Q2, are very encouraging, particularly since These types of projects provide better margins, cash flow and long term foundational support to our backlog. As we discussed in our last call, concerns about energy security globally and reliability domestically have come to the forefront drive many of our clients spending decisions. Also the call to action for cleaner forms of energy and renewables is a strong driver of spending.
We continue to see increases in our project opportunity pipeline and as of September 30, this pipeline has increased to 6,500,000,000 Our clients' low carbon objectives are evident in the types of infrastructure projects that comprise most of our opportunity pipeline. These projects, which include increased infrastructure investment supporting LNG, ammonia, hydrogen and other renewable fuels, As well as midstream gas and electric infrastructure, all projects that Matrix is well equipped to support. From an operating perspective, 1st quarter results, which Kevin will discuss further, continue to underscore the increasing momentum in our business. We expect this momentum will be reflected in improving performance as we move through the fiscal year and beyond. Based on the commitment of our people and their attention to quality, The benefits provided by our streamlined organization and increasing volume of quality projects in both backlog and the opportunity pipeline, We are confident in our ability to deliver.
I will now turn the call over to Kevin to discuss our results and then we will open for questions.
Thanks, John. Before I review the Q1, I want to start by reminding everyone about the 3 issues that impacted our results in the prior two fiscal years. First, the competitive environment the last couple of years resulted in a temporary reduction And the margin opportunity of awarded work. 2nd, our revenue volume being insufficient to fully recover Construction overhead, which has negatively impacted gross margins. We right sized our overhead to fit the opportunity pipeline in front of us, But the timing of those awards is only now catching up with the projected revenue level.
And third, increased forecasted cost on certain projects during fiscal 20 22, which were competitively won and then executed during a very difficult environment created by the pandemic and its resulting disruption to supply chain and other business conditions. All three of these issues have negatively impacted our gross margins and profitability. As I go through the Q1 results, I will discuss how we are progressing on each of these issues. Our first quarter revenue increased to $208,000,000 which is up 24% in the past year. The revenue growth to date has primarily been the result of increased reimbursable work.
As we move through fiscal 2023, we expect a similar level of revenue in the 2nd quarter And then expect growth from the recent impending awards. As expected, our gross margins improved to 6.2% in the quarter, which is the highest it has been in more than 2 years. The drivers to higher gross margin are directly related To improvement in the 3 issues I previously outlined, the strong project bookings are resulting in an improved backlog profile. We continue to increase revenue volume, which has reduced the negative impact of under recovered overhead. Under recovery of construction overhead costs improved significantly, impacting gross margins by 2.8% as compared to an average of 4.1% in fiscal 2022.
And project outcomes have improved, especially in the Storage and Terminal Solutions segment. Our SG and A was $16,800,000 in the quarter as we work to continue to hold overhead costs low despite the negative impact of inflation. We also incurred $1,300,000 of restructuring costs As we continue our transformation efforts toward increasing the efficiency and effectiveness of our back office support services, We expect to incur a similar level of costs in the Q2. Finally, we incurred other expenses of $1,100,000 associated with currency fluctuations. As expected, our effective tax rate was 0 in the quarter, which is our projection for the full fiscal year.
Our continued revenue growth and improved margins produced bottom line results significantly better than prior periods. Our net loss for the quarter was $6,500,000 or $0.24 per share. On an adjusted basis, our net loss was $4,200,000 And EPS was a loss of $0.15 Finally, our adjusted EBITDA improved to a positive $800,000 Now turning to our segments. In Utility and Power Infrastructure, revenue was $44,900,000 which was lower than previous quarters as we are in the final completion stages of a couple of Peak Shaver projects that are carrying low margins. We expect modest revenue volume in this segment We expect modest revenue volume improvement in this segment in fiscal 2023 as new capital projects ramp up.
The 1st quarter gross margin was 3.8%, which was an improvement from previous quarters due to an improving backlog portfolio and strong execution on electrical and T and D work. As a result, the segment operating income almost returned to a breakeven level. In Process and Industrial Facilities, Revenue of $86,600,000 continued at a strong level. Gross margin improved 5% Due to strong execution on refinery, renewable diesel, mining and minerals and thermal vacuum chamber work, partially offset by work on gas processing. The segment produced operating income that was slightly positive.
And finally, in Storage and Terminal Solutions, which produced the strongest results for the quarter, revenue increased to $76,900,000 related to LNG and other capital projects. We expect to see revenue increase further in this segment in the second half of the year based on new and expected project awards. The gross margin improved significantly to 9.8% in the quarter. This was driven by strong execution And improving portfolio mix and better recovery of construction overhead costs. In addition, the Tank Products business produced a record quarter.
The increased revenue and strong margins resulted in a positive operating income of 4.4% in the quarter, which is the highest since the Q3 of fiscal 2020. Now turning to liquidity. At September 30, 2022, we had total liquidity of $56,600,000 $15,000,000 in debt. Liquidity is comprised of $14,300,000 of unrestricted cash and cash equivalents and $42,300,000 of borrowing availability under the ABL facility. The company also has $25,000,000 of restricted cash to support the ABL facility.
As a result of rising revenue volumes, especially for cost reimbursable and maintenance type work, our investment in working capital has increased During the Q1 of fiscal 2023, which is the primary driver of a temporary decrease in liquidity since June 30, 2022. We have previously communicated that we will experience significant fluctuation in working capital demands based upon the mix of work and timing of project cash flows. This is why we strive to maintain a conservative balance sheet. Based on the forecast and mix of work, including increased capital projects, the company expects Its liquidity position to improve through the remainder of the fiscal year. Overall, we are pleased to see the improvements achieved in the Q1 and expect to see additional improvement as we move through the fiscal year.
On a consolidated basis, we expect the 2nd quarter revenue And profitability to be at a level similar to the Q1. As we move through the second half of the fiscal year, we should see additional benefit From recent and anticipated project awards that will result in strong revenue growth as well as improving margins and profitability. We will now open for questions. Thank
you. Our first question comes from the line of John Franzreb with Sidoti. Your line is open.
Good morning, everyone, and thanks for taking the questions. Good morning, Joe. I guess I'd like to start with the opportunity pipeline. It's up Nearly $1,000,000,000 from previous quarter. Kevin, what's driving the opportunity pipeline such as significant sequential increase?
So we're seeing a lot of activity in specialty vessel storage. We're seeing a lot of activity in hydrogen related projects. We're seeing a lot of activity in LNG related projects Around peak shaving. And so some of those projects that we knew were in the works With some of our core clients are starting to come in house now and as a request for pricing. And so they're adding into our Opportunity portfolio.
So but and I would just in general across majority of our segments, we're seeing more projects Come out of our clients' engineering and departments As ready to go projects that they're interested in. So that's the reason for the climb.
Okay. Since you brought that up, What's the outlook in the utility side of the business? Is that set to improve or is it still going to be a little bit tough sweating in the near term?
No, I think from a volume perspective, as Kevin said in his comments, in that segment is Both the electrical infrastructure work we do, but also utility peak shavers. We've got one job that we're wrapping up. It's in startup and commissioning now. That's going well. We're going to be substantially complete there by the end of the calendar year.
And so that so those revenues are diminished. We just booked, as we said in the press release, Now the Peak Shaving facility, albeit a little smaller than the ones we have had booked in the past. And so we expect Revenues on that from engineering and materials to start flowing into that segment here over the next two quarters. And then there are opportunity for us to start booking some other peak shaving facilities here probably into our Q3 starting 4th. And so a lot of the revenues, the majority of the revenues in that segment, at least in the near term are going to be more electrical infrastructure work.
But certainly, we have an expectation here as we look out over the next 2, 3 quarters, we're going to see backlog there improve and revenues.
And when we talk about some of the lower price jobs that you booked during the downturn, There was supposed to largely be work through by the end of this quarter that we're currently in. Is that still the case? And are they largely In the Utility and Power and Structured business or are they spread out more than I give credit to?
No, they were the projects that we get the most We're in Utility, the UTI segment and Process and Industrial Facilities. And so, we're continuing to work through really one of those projects And but it will be complete here in the Q3 substantially complete in the Q3.
In the 3rd quarter. Got it. And just one last question, I guess Kevin kind of finished on this note. If I heard correctly, working capital Acquiring were troughing, if you will, during this quarter and it should be improving for the balance of the year. Did I understand that properly?
Yes, you got that right. So yes, we've during the Q1, a lot of reimbursable activity. Reimburseable works a higher percentage of revenue than normal. So I think moving forward, I think If you look back the growth in fiscal 2022 of revenue and what we've had so far in the 1st part of the year, it's all reimbursable activity. From this point forward, I think the growth is going to be all capital type work.
That's what will be the bulk of it. And so that's got a different cash flow Per, then the reimbursable stuff. So you are correct. And so I think that change in mix will result in the Positive cash beginning in Q2.
Okay, perfect. Thanks, guys. I'll get back in the queue.
Thank you. Please stand by for our next question. Our next question comes from the line of Brent Thielman with D. A. Davidson.
Your line is open.
Great. Thanks. Good morning. Hey, John, one of the things I guess I remember was sort of an absence of kind of larger project opportunities, Call it 12 months or last couple of years that allow you to better leverage the workforce. I'm just wondering if you could compare Yes.
The visibility you have in those types of prospects today and the pipeline you spoke about maybe versus what you'd seen previously?
I think the I'd say the average size of the projects in the opportunity pipeline have increased Over the through the course of the last probably 12 months and the readiness of those clients And the quality of those clients has accelerated and improved. And so I think it's a combination of all those things It is coming together at a good time for us to start adding some quality and larger scale longer term backlog.
Yes. And I think if you look at it just numerically, we've already got 2 projects awarded in this fiscal year that are Larger than any award in either fiscal 2021 or fiscal 2022.
Yes. Yes, that's helpful. And then I seem to remember previously the LNG peak shaving prospects were pretty Selected, it sounds like you've got a host of opportunities kind of opening up now. Maybe if you could just kind of Jed, any light on how many of those you're potentially pursuing versus what you saw 12 months ago? I know those have Historically been good opportunities for you.
Yes. I think there was probably a gap probably in the last 18 months of any kind of large scale Peak shaving opportunities that at least were in our opportunity pipeline. And so today you look at it and there's The full there's a combination. So there's a full LNG peak shaving facility or an upgrade to a facility, And there's probably a handful of those. And then there's a lot of opportunity of small scale Repair and upgrade projects that are out there in the market, I think as we've said in the past, there is about Existing in the current utility fleet is around 100 peak shaving facilities that were built in the 70s 80s And many of those that are becoming more important to their to the local utilities now to operate needed upgraded.
And one of the fortunate things about is our engineering group, which has a specialty in cryogenic storage, Built a lot of those or designed a lot of those facilities. So it gives them A bit of a competitive benefit because our clients will come directly to us because they know there's that legacy Associated with their facility. And they're not necessarily huge projects. They could be kind of projects in the $5,000,000 to $15,000,000 range. And then you've got A handful of projects that are ranging from the 70, 80 range up to the 3 50 range.
Okay. And I know the business sort of evolved toward LNG, hydrogen, NGL, things like that. But I'm just curious if there's any sort of green shoots on the crude side and whether any Project prospects are starting to pop up there.
Yes. We have some prospects in our system for Crude storage, I think one of the things that's kind of hurting that market a little bit is storage right now for crude is pretty cheap. You look at we're with 30 minutes from our office here or 45 minutes from our office in Cushing, majority of the storage And Cushing is empty and the crudes flowing in and flowing out and there's very little retention. And So there is the occasional new crude storage tanks out there that we are bidding. We've got probably a couple in our backlog, but it's No one near the volume that it used to be.
But certainly there are some clients that we have been talking with about Either expanding their storage or building new storage either to connect into the logistic network as it makes sense. Some of them, yes, there's a couple of clients out there that are trying to create a connection To Europe for crude based on what's going on in Eastern Europe. So there is some talk, there is some activity out there, but Nothing significant is near term.
Yes. Okay. And then, John, one of the kind of Repeating theme seems like this earnings season in the industry has just been delays Other things in the supply chain sort of moving project schedules around. And I'm just wondering as you're starting to pick up a lot more work. Can you just talk about what you all are doing to kind of protect yourselves, shield yourselves from Yes, this stuff I assume is going to continue on.
Yes, sure. So we're we sort of feel like so we caught And it certainly impacted our business here over the last 18 months. We caught that upturn and that When the global economy rebounded from the pandemic, we caught and got caught Contractually with a lot of supply chain issues. And so I think we're sort of at the top of that curve. That curve is starting to come back down.
We are seeing some prices start to come down. Delivery, particularly around anything kind of with High alloy metal content or electrical components continues to be delayed. We know that. We're are including that in our project pricing and schedules. And in a lot of cases, if we're uncomfortable with our ability to meet that commitment, We've been able to work with our clients on protecting that risk to our business.
Okay. Okay. I appreciate all
the comments. Best of luck. Sure.
Thank you. I'm showing no further questions in the queue. I would now like to turn the call back over to John Hiehl for closing remarks.
Well, I appreciate everybody joining us for today's call and certainly appreciate your commitment and continued
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.