Matrix Service Company (MTRX) Q2 2019 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Matrix Service Company Conference Call to discuss Results for the Second Quarter of Fiscal 2019. At this moment, all participants are in a listen only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder this conference call may be recorded. I would now like to introduce your host for today’s conference, Kellie Smythe, Senior Director of Investor Relations of Matrix Service Company. You may begin.

Good morning and welcome to Matrix Service Company’s Second Quarter Earnings Call. Participants on today’s call will include John Hewitt, President and Chief Executive Officer; and Kevin Cavanah, Vice President and Chief Financial Officer. The presentation materials we will be using during the webcast today can be found on the Investor website – Investor Relations section of the Matrix Service Company website. Before we begin, please let me remind you that on today’s call, the company may make various remarks about future expectations, plans and prospects for 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 annual report on Form 10-K for our fiscal year ended June 30, 2018, and in subsequent filings made by the company with the SEC. To the extent the company utilizes non-GAAP measures, reconciliations will be provided in various press releases and on the company’s website. I will now turn the call over to John Hewitt, President and CEO of Matrix Service Company.

Thank you, Kellie, and good morning, everyone and thank you for joining us. Each year about this time Matrix Service Company celebrates the best of the best in safety performance by awarding our Board of Directors and CEO, Safety Excellence Award to those whose safety performance in the prior fiscal year exemplify our safety culture. I’d like to publicly recognize these teams this morning. The fiscal 2018 Board of Directors Safety Award has been presented to the Matrix Service Inc. Tank Maintenance and Repair Group under the leadership of Randy Botwinis. Among this team’s many accomplishments, it’s having worked over 1 million man hours across two consecutive years with zero recordable incidents. Our Catoosa fabrication facility, under the leadership of John Vick, has been recognized with a fiscal 2018 CEO Safety Award. This team achieved 0 recordable incidents in fiscal 2018 and also received the Star Award under the OSHA Voluntary Protection Program. In addition to these two award recipients, I also want to congratulate the many employees on our job sites across North America as well as those in our regional, corporate and international offices who also worked incident-free in fiscal 2018. The performance of these recipients is supported by the commitment of our more than 5,000 employees who live our culture every day. I’m extremely proud of all of our employees who put the safety of themselves and those around them at the forefront of everything they do. Moving on. Overall, the business and our markets are performing as anticipated. We’re off to a good start in fiscal 2019 with our earnings improvement to date, and we expect this trend to continue. Kevin will provide you with more details about this in his prepared remarks. Before he does, I’d like to touch on backlog and the related markets that drive our growth. As we have discussed on past calls, because of the nature and timing of awards in our business, it is more important to look at long-term backlog trends rather than backlog in any single quarter. We entered this fiscal year with $1.2 billion in backlog, the highest in three years. We also expected project awards in fiscal 2019 to be strong with more significant awards coming in the back half of the year. Based on awards received after the close of the second quarter as well as those forecast for the balance of the third and fourth quarters, these expectations remain unchanged. One of these early third quarter awards represents another highly strategic storage solutions win for the business. Over the last 12 months, we have had over $1.5 billion of awards, representing our book-to-bill of 1.3, which is indicative of the strength of our markets. In the Electrical Infrastructure segment, there is strong coast-to-coast demand for power delivery work, which includes high and low voltage transmission, distribution and substations. This provides significant opportunity for targeted geographic expansion through organic growth and strategic acquisitions. In Oil Gas & Chemical, domestic and international demand for refined products and natural gas as well as regulatory initiatives, such as IMO 2020 and the return of capital expansion in the U.S. chemicals industry are all creating great growth opportunities for our turnaround in plant maintenance, engineering and capital construction groups. In Storage Solutions, there is significant demand for our aboveground and specialty vessel tank and terminal expertise across multiple energy sectors, including crude oil, refined products, LNG and NGLs. This demand is being driven by the following: the need for takeaway capacity associated with the protection growth across North America’s energy producing regions, global energy and chemical products demand, abundant natural gas, limited EPC storage options and an overall demand for cleaner energy sources. And finally, in our Industrial segment, improving commodity prices, strong consumer confidence and trade protection as well as energy, industrial and natural infrastructure needs, support and create additional opportunities for our customers and, in turn, our services. With a leading brand position in the integrated iron and steel industry, our service offering and maintenance, turnarounds and capital projects will continue to be in high demand as our customers upgrade and modernize key facilities. Likewise, as other commodity prices stabilize, especially copper, we are well positioned in the southwestern U.S. to support our mining customers when they begin capital expansion and maintenance projects. Against this backdrop and based on our view on the timing of awards and revenue burn, we’re confident in our ability to finish this fiscal year with a book-to-bill of 1.0 or better. The strength in our end markets and our strategic plan, which we affirmed with our board of directors just this week, also gives us confidence in our future and our ability to reach more than $2 billion in revenue by the end of fiscal 2022. To accomplish this goal, we will expand our service offering across North America and into select international markets through continued organic growth across all our operating segments, execution of strategic acquisitions, capital investment and a continued focus on our people and our core values. That said, we’re also mindful of key economic and market uncertainties. Among them: slowing growth in the U.S., Western Europe and China; increasingly tight and competitive labor markets; and trade tensions, which we believe will ultimately be resolved. At the same time, unemployment in the U.S. is low, wage levels are rising and consumer confidence remains high. The global demand for energy on both developed and developing countries continues to grow, and the U.S. remains a global energy leader. And finally, the energy and industrial infrastructure needed across the world create an immediate sense of urgency for our customers and long-term growth opportunities for our business. I am bullish on our company and market position and our ability to respond to the significant opportunities across our end markets, all of which will allow us to meet our long-term strategic growth objectives. I’ll now turn the call over to Kevin.

Thank you, John. I want to start with the specific takeaways from the quarter. First, the revenue ramp that began last year continued in to the second quarter. Our revenue has increased over 38% the last four quarters from a low of $246 million in the third quarter fiscal 2018 to $341 million in this quarter. This upswing has been driven by improving market conditions, which has resulted in a 44% increase in backlog from this time last year. Growth has been led by our Storage Solutions segment as we execute a number of major greenfield and expansion projects for storage of crude oil, LNG and NGLs. We expect the strong level of project awards to continue in this segment. These awards, combined with existing backlog, will drive revenue growth for the balance of fiscal 2019 and into fiscal 2020. The Industrial segment revenue has also grown significantly from iron and steel volumes as our customers made capital investments to modernize and enhance their facilities. We expect – also expect this trend to continue as we move toward the end of the fiscal year. Oil Gas & Chemical revenue has also increased on more refinery work, including capital projects, expansion of our union solution to the West Coast and a strong fall turnaround season. Incremental to this segment is the engineering work we are providing in the midstream gas processing markets. Looking forward, we expect continued strong performance in this – in work across this segment, including a spring turnaround season, similar to the recently completed second quarter. Revenue in the Electrical Infrastructure segment has been lower than anticipated but is beginning to show signs of recovery. As a reminder, the majority of this segment is now comprised of power delivery work, which will continue to be a strategic revenue growth opportunity for the business. Overall, we are confident in the revenue outlook based on our view of the respective segments. The next topic I would like to discuss is gross margins, which were 8.2% in the second quarter. While an improvement over the past several quarters, this quarter’s margin was impacted by work bid in prior periods in a highly competitive environment as well as lower than previously forecasted margins on some of those projects. This is exactly what we are experiencing in our Electrical Infrastructure segment, where gross margins in the quarter were 6.1%. We expect improvement to move through the rest of this fiscal year and believe this segment could produce more of this toward the lower end of our long-term range of 9% to 12%. In order to consistently produce margins in this range, we need to see a higher volume of overall revenue to improve utilization of our infrastructures. This will occur as our core market in the Northeast fully covers from the decreased spending that has impacted this segment the last couple of years. In addition, the geographic expansion of this business is important to achieving consistent long-term results. In the Oil Gas & Chemical segment, third quarter gross margins of 10.6% represented a significant improvement over recent periods, driven by higher levels of turnaround and maintenance activity, our California initiative and engineering work on midstream gas projects. This margin performance is within our target range of 10% to 12%. And based upon the current market environment, we expect to produce similar margins in the second half of the fiscal year. Storage Solutions gross margins in the quarter were 8.9% as we finished up lower-margin work. The more recent projects that we have been awarded are ramping up, and as a result, we should achieve margins within our normal range of 11% to 13% for the remainder of the fiscal year. The Industrial segment delivered another solid quarter, however, gross margins of 5.7% were impacted by a legacy project near completion and a high volume of reimbursable work on our major capital project in the quarter. The market environment for iron and steel remains strong, and margins should improve in the second half of the year and be within our target range of 7% to 10% as the majority of this segment is already operating within that range. In summary, while the consolidated gross margin improvement in the first half of the year was somewhat slower than anticipated, the outlook for the second half of the year is significantly better and will approach our targeted long-term levels for the consolidated business. As a result of the respective revenue and gross margin trends I’ve just described, we are updating our fiscal 2019 guidance. We are increasing our revenue guidance from the previous range of $1.25 billion to $1.35 billion to the new range of $1.35 billion to $1.425 billion. The positive impact of increased revenue volumes and margin improvement in the second half of the year is offset by lower margin performance in the first half of the year. As a result, the EPS guidance remains unchanged at $0.85 to $1.15. As we have discussed previously, the second half of the year is going to be much stronger than the first half with the third quarter improving significantly over the second and the fourth quarter improving significantly over the third. Now I’ll discuss specific results for the second quarter as compared to the same period last year. Consolidated revenue for the quarter was up 20% to $341 million compared with $283 million in the same quarter last year. Consistent with the performance we saw in the first quarter of fiscal 2019, our Storage Solutions and Industrial segments saw significant improvement on a year-over-year basis, which was partially offset by lower revenue in the Electrical Infrastructure segment. The company recorded a consolidated gross profit of $27.9 million compared to $26.7 million during the second quarter of the prior year. As I’ve discussed previously, our overall gross margin for the quarter was 8.2% compared to 9.4% in the prior year, which benefited from closeouts on projects that we booked before the downturn. As anticipated, margin levels continue to improve, and this trend is expected to continue as we move through fiscal 2019, driven by improved margin profile of our backlog, higher revenue volumes and the resulting improvement in construction overhead utilization. Consolidated SG&A during the period was $22.4 million compared to $21.5 million a year ago. We’ve focused on controlling our cost structure during the downturn that impacted us the last couple of years. We will continue this approach and expect to leverage our overhead cost structure as the business grows. Our effective tax rate in the quarter was 27.4%, which was in line with our expectations, and we are forecasting a 27% rate for the balance of the fiscal year. The effective tax rate for the same period a year ago was a negative 5.8%, which benefited from the implementation of the Tax Cuts and Jobs Act. As a result of this tax benefit, the prior year quarter produced an earnings per share of $0.17 as compared to the $0.14 we produced in the recently completed quarter. Moving on to the 6-month results. Consolidated revenue from the first half of the year was up 19% to $659 million compared to $553 million in the same period last year. The company recorded gross profit of $51.3 million for the first half of fiscal 2019 as compared to $55.6 million during the first half of the prior year, which benefited from project closeouts. Consolidated SG&A of $43.6 million for the current fiscal year is up slightly from the prior year expense of $43.1 million, and earnings per share was $0.23 in the current year and $0.31 in the prior years. Moving on to the balance sheet. Our financial position continues to be strong as we enter the quarter with total liquidity of $137 million, a cash balance of $71.5 million and 0 debt. While our current liquidity is sufficient to support our business, we expect liquidity to improve through the course of the year, consistent with operating results. One use of cash during the most recent quarter was the stock buyback. In December, we purchased 311,000 shares or $5.2 million or an average price of $16.71 per share. As we move forward, our approach on stock buybacks will continue to be opportunistic. With that, we will now open for questions, after which, we will have a few more comments before ending the call.

Thank you. [Operator Instructions] And our first question comes from John Franzreb with Sidoti & Company. You may proceed.

Good morning guys. How are you doing?

Good morning John.

Can we start with the incremental revenue that you put in the guidance? Where did that come from? And why does doesn’t it have kind of incremental benefit to the EPS line?

Yes. So I’ll take that. So as we’ve moved through the year, the revenues have solidified, and we’ve seen a lot of our reimbursable work kind of accelerate, increase in volume. And as you know, that revenue – this could be – it could be good revenue, but it often presents not quite as high a margin profile as some of the lump sum were. Now when you look at the fuller year and you take all the gives and takes, we’ve mentioned that our gross margins in the first half of the year weren’t quite as strong as we would’ve liked. While they improved, they didn’t improve as much as we anticipated. With that said, we do expect margin improvements as we move through the last half of the year. And as I mentioned, most – at least three of our segments should get into our targeted margin ranges. So when you add up all the gives and takes of that added revenue, lower margins in the first half, they kind of offset. And as a result, we’ve maintained the EPS guidance.

Okay. Fair enough. And to exit fiscal 2019 with a book-to-bill above 1.0 would suggest that you’d have to see an acceleration in the order bookings. Have you begun to see that acceleration? Or are you just looking at the opportunity pipeline and expect that business to come in between now and June?

We have several pretty strong projects that we’re working on – project opportunities that we’re working on. For instance, in the Storage Solutions business, we have mentioned in our prepared remarks, we’re in the final throes of contract negotiations on a really strategic project that we’ve been barely awarded in January. And there’s several other projects that we are in the FEED stage for, and that we anticipate to be in a pretty low competitive position to be able to win those projects should they go forward. So we had always felt from the beginning of the year that the backing out, we – end the last year, we saw some big projects come into backlog. We knew there was going to be sort of a pause on some of these bigger ones, the ones that we’re seeing now as anticipated. Some of them – again, some of the bigger terminal projects are projects that we’re going to hopefully get in the backlog over the next six to nine months. And so it will be – there will be some timing there, whether they come in, in this fiscal year or in the early part of next fiscal year. But we feel very good about our position there and our service offering, what we’ve got to sell into the energy storage markets. And so that, combined with continued strengthening of our Electrical Infrastructure business, our organic moves that we’re already starting to make, what’s going on in our refinery turnaround business, how strong that is and then just – in industrial markets in iron and steel, which continues to be very strong, plus the opportunity for some larger capital projects that may come into this year or even in the early part of next year. So it’s – like usual, John, it’s timing for us. But we think based on our assessment of the timing of the projects that we see, our revenue burn rate in the second half of the year, the opportunity for us to get a one or a better is out there.

Great, great. And your commentary on the gross margins was helpful. It sounds to me like storage is looking like it will get back to at least the normal gross margin targets. Industrial, your hopeful on infrastructure. Could you just kind of talk a little bit about, a, when you expect the low margin business that you took from the downturn will no longer be an issue? And also, when the timing of the margin profile turnaround in the other businesses, what’s the first one that’s going to hit the P&L that you think in fiscal 2019?

I’ll take this one, and I’ll just go through this by segment. So we’ll start with Oil Gas & Chemical. We hit 10.6% this quarter. I really don’t think we’ve got much as far as that legacy backlog flowing through that segment at this point. And so yes, I don’t think that issue is impacting that segment. I think, as I mentioned in the prepared remarks, that we expect this segment to continue to perform at the level it just did in the second quarter or a very similar level. Then you look at – so let’s talk about storage. Definitely, margins were lower than we would normally like. But the good news is I think we’re at the end of the projects that we signed in the downturn, and the projects we’ve signed this last year, we’re ramping up. So I think you should expect to see strong margin performance in that segment in both the third and fourth quarter. In the Industrial segments, it might not have been impacted too much from the downturn. I think it improved quicker or earlier than the other three segments. And I think that the overall mix of that segment, there’s still a good piece of reimbursable work flowing through there. But I do think we should be at least at the bottom end of the range as we complete the rest of the year for that segment. The one segment that we may not meet the bottom end of the range would be Electrical. I mean, we’re definitely going to be moving toward it. It still got some bookings that are working through there that are not as strong as the rest of the segments. It’s just – as we’ve talked about on prior calls, we’re just a little less certain, a little behind the time line of the other three segments and that segment. So 6.1% is definitely a low mark, I would expect, and we ought to be moving closer to 8%, 9% as we move through the rest of the year and then looking to get that one back up to the targeted ranges in future periods.

Okay. I’ll get back to the queue and ask a follow-up. Thanks, Kevin.

Thanks, John.

And our next question comes from Tahira Afzal with KeyBanc Capital Markets. You may proceed.

Hi, folks. So I guess as a follow-up in that question. Versus, let’s say, at the beginning of your fiscal year versus where you are today, it seems, from what I can tell, the rule of the lower-margin work might have been a little slower than you thought. Any particular reasons for that? Is it labor productivity? Weather? Or we shouldn’t read anything into it? It’s just a normal course of how projects roll, you can be off by a bit?

Yes, I think it’s just normal course of business, just getting through those projects, plus the ramp up of the new or better work, which is a lot of the – a lot of our larger storage projects, the actual start of broadening a major revenue was really predicated on engineering and material procurement and the timing of those things and that interaction with our clients to get the design correct. And so – and when we thought we might have put a shovel in the ground in Q2, that shovel may not go into the ground until a month or two later. So – which is not a big deal, but it’s just kind of a – it’s just kind of the way those projects roll together. So you get a combination of that mix of work between the two, which also helps to sort of depress those margins.

Got it. And, John, if you look at operationally where those projects are, the new ones right now, what could be a potential risk between now and the third quarter that could maybe perhaps delay the numbers or push them out a little further? In other words, are you far enough with the engineering at this point to feel comfortable around the 3Q ramp?

Yes, we’re very comfortable.

Got it. Okay. And I guess the next question I have was really in terms of competitive landscape. We know that the McDermott’s been angling to sell off its storage business. We are seeing some more competitors move here and there. Any thoughts around that? Is generally the competitive dynamics the same? Last quarter, you thought the McDermott divestment might lead to some dislocations that you can benefit from.

I think we’re not aware of where they are in their process of divesting them. We’ve not seen anything publicly. I think where we’re seeing from a competitive standpoint is creating – as we had expected, is creating more opportunity for us around small to mid-scale LNG and around specialty vessels. I think there’s some uncertainty in the marketplace about what the – what that business is going to look – their business is going to look like into the future, who the ownership will be, what the ownership structure is. And so that’s – and I think that’s helping to really, if nothing else, create an even more level playing field for us when we compete in that market. So I think it’s been unfortunate for us – I mean, fortunately for us, it’s been sort of a positive disturbance. Hopefully, for the – again, as we said last time, for the employees of that business that it will end up being a positive thing for them too, eventually.

Got it, okay. And John, I have got a couple more questions, but I will hop back in the queue.

And our next question, we have a follow-up from John Franzreb with Sidoti & Company. Sir you may proceed.

Yes. I was just wondering about the $2 billion revenue outlook by 2022. How much of that requires M&A and how much of that is expected to be organic growth?

Our expectation is probably about half and half. We’ve been – a lot of the acquisition we did was the Engineering business approximately two years ago, and we’ve been on sort of acquisition hold as we worked through this downturn that we’ve been feeling. But we’re – because of our confidence in where our markets are today and how we see the rest of the year performing and moving into 2020, we’ll be actively moving into the acquisition front in the later part of this calendar year. And we have our focus areas where we want to go, where we think some of the biggest growth opportunities for us, and so I would expect for us to be seen as being much more active on that front here later in this calendar year.

And John, what kind of size of acquisitions are we talking about initially? And how willing are you to lever up the company?

So we’ve got a pretty conservative view, as you know. And so we may actually – in this case, particularly based on the strength of our markets, we may have a little bit better appetite for – more of an appetite for some leverage as we look to expand the organization. Particularly around some of the larger acquisitions, we’re probably in the electric power delivery space, and that will be an area where you might see us looking at larger acquisitions that may require more leverage that what you’re used to seeing us do.

I would expect that leverage to still be fairly conservative. I think it’d be less than two and with an intention to pay that off fairly quickly.

Great, Kevin. Thank you guys, I appreciate you taking my questions.

And our next question comes from Noelle Dilts with Stifel. You may proceed.

Thank you. So just then on the last question, maybe you could expand a bit on how you’re thinking about target multiples that you’d like to pay and what you’re seeing in the market, if private transaction multiples have come down at all given the pullback in the market? And if you could also touch on your appetite for sort of more international expansion, that would be helpful.

I’ll hit your second one first. So on the international front, we’re going to do that on the back of our storage brand. And so we think there’s opportunities for us into Mexico. And obviously, Mexico is in some – in a little bit of a disturbance right now because of the change in government. But as – we think of that over time, that will flatten out a little bit better. And so there’s going to be, we think, a lot of storage opportunities for us in Mexico. We think into the Caribbean, with fuel switching and the need for LNG out of the U.S., and then maybe into some other parts of South America. So I would say that’s probably where we’d be looking first. And that acquisition may or may not be a company that’s got a foot – that’s got a – that’s based in one of those foreign entities, but it could be a – not perhaps a U.S. company that operates in those foreign entities. So – but we’ll be looking at and sorting that out. But again, it’s going to be on the back of our storage brand. On your first question on multiples, so we’re just sort of kind of getting back into that acquisition mindset after what the last couple of years have been. If you talk about the Electrical segment, there’s probably going to be a trend here over the next couple of years of some consolidation in the Electrical business, in the delivery – power delivery business. And so we would, along with the discussion we had with John around leveraging the business, the multiples associated with that, we would – we frankly would expect them probably to be a bit little higher than what we would normally and would like to pay. Now what that it is today, I’m not sure I can tell you. We’ll have a better feel for that as we move up in time.

Okay. Makes sense. And then second, you mentioned...

But at the end of the day, I mean we’re not going to do anything crazy, and we’re not going to overpay and pay unreasonable prices. We’ve already – on the Electrical, we’ve already started organically, have moved into the Midwest. We already have crews out and working for a variety of clients, providing transmission distribution work. And so we’re not going to do anything silly as it relates to overpaying for businesses.

Okay. Makes sense. And then second, I think you briefly mentioned that a tight labor market could be a risk. Are you seeing any sort of pockets of particular tightness or challenges at the moment? And I guess where do you see the most risk moving forward?

So we’re – I think we’ve been pretty effective to date of making sure all of our projects are manned, whether that’s on a merit shop or union basis. And so where those shortages are going to be, right now, we’ve had some pockets on a couple of projects, but we’ve been able to work our way through that. But certainly, skilled trades around welders and pipe fitters, steel erectors and bola makers are going to be some of the trades that will be most challenged. Fortunately for us, if you think about it in our tank business, a lot of those crews are – they’re pretty steady employees for us, and we move – we’ve got some of them end up worked, and move them to job to job to job, and the timing works well for us. And – but certainly, I think the Gulf Coast will continue to be an area, not only sort of a tight labor market, but fortunately too, it’s also an area with a large contingent of available labor. And – plus with our nationwide presence, we’re able to recruit across the country to get into our jobs wherever they are. So we’re going to work through that, and we’re going to be mindful of the demand for labor. And it’s just going to be part of the things or change we’re going to have to deal with.

Thanks very much.

And we have a follow-up question from Tahira Afzal with KeyBanc Capital Markets. You may proceed.

Thank you. John, just going back to the Oil Gas & Chemical segment. Obviously, growth, you were upbeat. What’s driving a lot of the activity there? Is it the sustained turnarounds? And I know they were pent-up and we are seeing now a long period of catch-up. Or are you seeing some of the smaller projects coming back as well?

I think it’s a little bit of both for us. I think we are able to – we’ve been fortunate to add some smaller projects into our mix as we’ve matured, as we’ve built our brand as an organization. The turnarounds that we’re seeing now are a little larger than what we might have seen a couple of years ago, and we’re – where you’ve got a, I think, a better, more expanded presence nationally, to take advantage of the work that’s going on there. We’ve been able to gain some market share over some of our competitors because of the quality of the work that our teams do. And so overall, I think there’s just been good things for us. I mean we’re going to be interested to see how IMO 2020 impacts refinery, maintenance and capital projects out into the future. We think there’s going to be opportunities there for us. We recently announced a project that we won in Salt Lake City for a – basically low sulfur project, which is high octane project, which is important to where the automotive industry is going and where the demand for low sulfur fuels, and so we’re pretty pleased with that win. And it’s one of the first of that technology that’s been put in, in the U.S. So I think it’s a combination of both. I think our brand is getting stronger for us to take on more project-type work, but we’re continuing to win our fair share of turnarounds and maintenance opportunities as well.

Got it. That was pretty helpful. Thank you, John.

Thank you.

Ladies and gentlemen, that now concludes our Q&A portion of today’s conference. I would now like to turn the call over to President and Chief Executive Officer of Matrix Service Company, Mr. John Hewitt, for any closing remarks. Sir, you may begin.

Thank you. As we end today’s call, I’d like to reiterate what we believe the key takeaways are. First, as predicted, the revenue ramp that began last year has continued in the first half of this fiscal year. Supported by our backlog position and project opportunity pipeline, this trend will continue through the second half. Gross margins will improve across most of our business, and we will approach our targeted long-term levels for the consolidated business by fiscal year-end. We have therefore raised revenue guidance but held our earnings guidance due to the fact that the lower performance in the first half of the year will be balanced by the expected strong performance in the second half of the year, created by increased revenue and better gross margins. We are confident we will finish fiscal 2019 with a book-to-bill of 1.0 or better, and that we will achieve our guidance. Finally, given the strength of our end markets, our knowledge of both pending awards and our project pipeline and the elements of our strategic plan, we are confident in our company, market position and in our ability to meet our long-term strategic growth objectives. I want to thank all of you for participating in today’s call, and we look forward to talking with you again next quarter.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.