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Executives

Truc Nguyen – Investor Relations

Michael J. Bradley – President and Chief Executive Officer

Thomas Long – Chief Financial Officer

Analysts

Martin Malloy – Johnson Rice & Company

Michael Harrison – First Analysis Corp.

Rich Wesolowski – Sidoti & Co.

Matt Duncan – Stephens Inc.

Tahira Afzal – Keybanc Capital Markets

David Yuschak – SMH Capital

Matrix Service Co. (MTRX) F4Q09 Earnings Call August 4, 2009 11:00 AM ET

Operator

Welcome to the Matrix Service Company fourth quarter and FYN 2009 results conference call. (Operator Instructions) It is now my pleasure to introduce your host Truc Nguyen Investor Relations Service Company.

Truc Nguyen

I would now like to take a moment to read the following, various remarks that the company may make about future expectations, plans, and prospects for Matrix Service Company constitutes 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 statement 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.

In addition, some of our comments today include non-GAPP financial measure. I encourage you to refer to the reconciliation of GAPP to non-GAPP financial results that is posted on our Web site and included in our earnings release. Matrix has provided the necessary reconciliation in our press release to disclose a non-GAPP financial measure in this conference call. EBTIDA is provided as we believe the financial and investment communities utilize this measure to affect our performance and evaluate the market values of companies considered to be in the business similar to ours.

I would now turn the call over to Michael Bradley, President and CEO of Matrix Service Company.

Michael J. Bradley

Tom Long our CFO is with me on the call this morning and we appreciate all of you joining us to discuss our recently completed fiscal 2009 and to look forward to fiscal 2010. Before I turn the call over to Tom to discuss the financial results, I would like to cover the following topics. First is our overall performance fiscal year 2009. Second is the SM Electric acquisition and integration update. Third is the market trends and outlooks, and finally our backlog.

To begin, we are pleased to report our fiscal 2009 results. Matrix achieved record earnings and outstanding safety performance while making significant advances in our diversification strategy. During a tough economic environment, we produced fully diluted earnings per share of $1.16 in fiscal 2009, which is a 45% increase over fiscal 2008.

Our fourth quarter results were solid at $0.26 for fully diluted share and benefited from an increase in turnaround activity and excellent project execution for the Matrix team across all of our businesses. As I indicated during our last call, markets remained challenged during this quarter and we continue to see clients slow or defer spending plans, along with increasing competition. However, we are seeing some signs of improvement, which I will discuss later.

In addition to project execution in safety, we attribute our fiscal 2009 success to the continued advancement of our long-term strategy. I would like to highlight a few key points that demonstrate the execution of our strategy in fiscal 2009 to strengthen, grow and diversify our company.

First, we continue to strengthen our financial position in liquidity. We increased our cash position to almost $35 million while funding two strategic acquisitions during the year and we remain debt free. Our financial strength puts us in a position to focus on quality projects, which is particularly important in today's competitive marketplace where companies like Matrix are being asked to assume more contract risks.

We planned to be selective in our purists and avoid projects with terms conditions that would prevent significant risk to Matrix Service and our shareholders. Our strong financial position allows us to pursue other strategic opportunities, both domestically and internationally.

As you know, we completed the acquisition of certain engineering and construction assets in December 2008 and later acquired SM Electric in February 2009. Our expanded engineering and construction capabilities advances our diversification efforts and steel plate structures, including LNG, LPG, thermal vacuum chambers, nuclear and solar, as well as adding more capabilities and process in electrical engineering.

We are on track to receive our N stamp this fall to provide engineering, fabrication and construction of nuclear containment vessels. The SM Electric acquisition accelerates the growth of our electrical and instrumentation business. We will continue to seek other strategic opportunities in fiscal 2010 that complement our long-term strategy.

We were also successful with our granite growth and diversification efforts with expansion in the Gulf Coast and Western Canada, two key target markets for us. During fiscal 2009 we developed the talent and infrastructure in both areas to successfully bid and execute a broader range of projects. We expect to see significant growth in both areas over the next few years.

While it is important to stay focused on the long-term, we are very aware of the current environment and will take the steps needed to maintain our strong financial position. We continue to actively manage our overall cost structure, including construction overhead and SG&A cost. Our focus is on balancing our cost structure with the current market conditions and a need to maintain adequate resources to address the opportunities that we see developing.

While we are implanting further cost reductions, we also believe this is an opportunity to selectively pick up key talent, build market share and strengthen our intermediate and long-term position. Again, our focus is on maintaining the right balance of cost and resources, but we do have plans in place to quickly adjust the changing market and competitive conditions.

In April we celebrated the 25th anniversary of Matrix Service Company. Matrix started out with just four employees in a garage office. Today we have approximately 3,000 employees in 17 offices across the U.S. and Canada. We are proud of our 25-year history and the achievement of such an important milestone.

I would like to take this opportunity to thank our employees, including the many that have been with the company since its early day and those that have joined us in recent years. Our employees are the reason Matrix service delivered a year of record earnings in this tough environment while achieving excellent safety performance. Again, our balance sheet and liquidity are strong.

Through organic growth and diversification, the development and addition of key talent, and the completion of two acquisitions Matrix Service advance our long-term strategy in fiscal 2009. While the economic outlook remains uncertain and challenging, we believe we are well position for the long-term and I'll look more toward outlook shortly.

As I mentioned earlier, we completed the acquisition of SM Electric on February 5, 2009. Since that transaction closed we have focused on our efforts on a successful integration. We expected that SM bridge history strong brand and highly skilled work force would be in a position to significantly increase our electrical and implementation capabilities in the Northeast and Mid-Atlantic states, and we have not disappointed.

To date the integration of SM is proceeding according to plan and we are pleased that the two company cultures have come together exceptionally well. We are excited about the future of our electrical instrumentation business and our positioned to capitalize on numerous opportunities associated with updating and expanding high voltage electrical infrastructure in the U.S. especially in the Mid-Atlantic and Northeast region. We still expect to see significant opportunities in the electrical instrumentation market over the next few years.

Looking at the market, while the economic down turn impacted our business in the second half of fiscal 2009, we are seeing some indications that the market may be improving. More importantly, we begin to see signs that our core markets could be recovering later this calendar year. Our job funnel, which remains very robust, includes a broader array of projects as results of our emphasis on business development, the addition to key talent, and recent acquisitions.

The size of the job funnel and the increase in mid flow activity is also result of our geographic expansion in the Gulf Coast and Western Canada. We are also looking at opportunities of greater scale, which is reflective of the expanding capabilities that we have built.

These projects include both repair and maintenance and construction opportunities, above ground storage tanks, electrical and instrumentation, specialty and turnaround markets. We are also pursuing opportunities outside of the U.S. and Canada in our core business. As we pursue these domestic and international opportunities, we will remain focused on managing our risk while developing quality projects execution and value to our customers.

During the last half of fiscal 2009, we began seeing an increasing number of competitors bidding on projects as spending slowed, which is putting pressure on margins. There has also been a shift in risk allocation including more demanding terms and conditions and an increasing number of lump sum projects.

As a result, we will continue to maintain our disciplined approach to project selection, contract risk management, and project execution. We remain focused on preserving the integrity and quality of our long-term business strategy, but acknowledge that continued economic pressures could make it difficult to maintain the level of profitability achieved in recent quarters.

The economic downturn that began in calendar 2008 also impacted our backlog as customers deferred capital spending plans, altered maintenance spending programs, and cancelled previously approved projects. For the fiscal year, we experienced project cancellations of approximately $50 million including $14 million in the fourth quarter. As I stated previously, our customers continue to assess the economic environment and the resulting impact on their businesses, which has resulted in a more cautious tone and uncertain outlook.

In spite of these conditions, we have maintained a solid backlog to the end of the fiscal year while staying disciplined in our bidding and contracting strategy. While we remain somewhat cautious about the near-term outlook for the business, we believe our investments in business development strengthened engineering and construction capabilities, geographic expansion, and key talent has put the company in a stronger position as we move into fiscal 2010 and beyond.

We believe that our conservative fiscal management and our focus on safety and quality, combined with our expanding capabilities, positions the company to achieve our intermediate and long-term growth and diversification strategies as market conditions improve.

I will now turn the call over to Tom Long to discuss the financial results.

Thomas Long

We issued a press release this morning, which disclosed the specific details of the results of the fourth quarter and full year of fiscal 2009, so I will discuss a few of the highlights. But first I want to discuss the change in our fiscal year that we also announced in our press release this morning. We are changing our fiscal year-end to June 30 effective immediately.

The company's current May 31 fiscal year-end is difficult as the preparation of our quarterly and annual reports coincides with various holidays. The cost of this change will be minimal and benefit our employees. In November, we will report the operating results for the month ended June 30, 2009 so that will be a one-month period, as well as the first quarter ended September 30, 2009.

In the fourth quarter, we earned $0.26 per fully diluted share on $180 million of revenue. Our construction services segment revenues declined to $100 million in the quarter as compared to $121 million in the same quarter last year. This was primarily in the downstream petroleum, above-ground storage tank, and specialty markets, which experienced fewer releases of large projects during fiscal 2009. This was partially offset by the electrical and instrumentation market, which increased as a result of the SME acquisition that Mike mentioned.

Our repair and maintenance services segment revenues increased to $79 million in the fourth quarter compared to $73 million in the prior year. The increase was primarily due to the robust turnaround activity in the downstream petroleum market.

Operating results, we benefited from gross margins of 13.8% in our construction services segment and 12% in our repair and maintenance segment. Consolidated gross margins were 13%. Although the level of work in the fourth quarter did not allow us to fully cover our construction overhead costs, our effective project execution allowed us to achieve solid gross margins in a tough economic environment.

In the third quarter, we reduced quarterly SG&A expense by $1 million primarily in the areas of personnel and administrative costs. In the fourth quarter, our SG&A costs remained relatively flat compared to the third quarter, excluding the impact of the recent acquisitions. As we move into fiscal 2010, our focus on maintaining a competitive cost structure will not change, as Mike discussed earlier.

For the year, we achieved consolidated revenues of $690 million and generated record operating income and fully diluted earnings per share of $47 million and $1.16 respectively. These operating results generated cash from operations of $39 million during the year, which enabled us to grow our cash balance from $22 million at the beginning of the year to $35 million.

We did this while funding $15 million for two acquisitions and $10 million for capital expenditures. We did not draw on our $75 million senior credit facility during fiscal 2009 and have only utilized $7 million in capacity for letters of credit to support our business. We also continue to have the bonding capacity necessary to support our business. Our strong balance sheet and financial flexibility should allow us to capitalize on future business opportunities.

And with that, I'll turn it back over to Mike for some additional comments.

Michael J. Bradley

In summary, we are proud of delivering record earnings per share during fiscal 2009 in an extremely tough economic environment. We believe the company is well-positioned to manage through the current economic environment and to capitalize on opportunities as the market improves.

Our sales and project capabilities enable us to expand the scale and reach of the opportunities in energy and industrial infrastructure markets, which is supported by the increasing number and diversity of prospects in our bid flow today.

We have a strong cash position, no debt, quality backlog, and a strong team to continue to execute well in a tough environment. We believe that revitalization of our nation's energy infrastructure, a greater emphasis on renewable energy and other infrastructure projects will drive our nation's long-term energy policies, which present our business with significant opportunities going forward.

The uncertainty of the economic recovery and the timing of awards coupled with the seasonality of our business will likely produce uneven quarterly results during fiscal 2010. Based on market conditions we are seeing, our plans assume a challenging environment in calendar year 2009 with some improvements starting late this year and into 2010. As a result, we expect to achieve earnings in the range of $0.80 to $1.10 per fully diluted share. Capital expenditures are expected to be approximately $12 million.

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

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Martin Malloy – Johnson Rice & Company.

Martin Malloy – Johnson Rice & Company

When you talk about seeing some potential improvement late this year in your core markets, can you give us some examples of what you are seeing out there that gives you confidence?

Thomas Long

Yes, I think there's a couple of things we're seeing. One is just looking at our bid flow activity today compared to even three months ago, we're seeing improvement there. We're getting indications that projects again that have been deferred are getting back in front of management teams with the likelihood of going forward. And we still see quite a few opportunities in the E&I market developing. So I think we're just seeing a little different tone than what we saw say even 60 to 90 days ago.

So I think we are expecting to see some signs of improvement later this year. I think some segments will continue to be challenging and other segments I think we're starting to see some good opportunities develop. So it's a mixed bag geographically but all-in-all we're seeing some encouraging signs, and that includes our AST market as well.

Martin Malloy – Johnson Rice & Company

With the international opportunities, can you talk a little bit about the potential timing and type of opportunity that you're seeing there?

Michael J. Bradley

Yes, the types of opportunities that we're looking at, Marty are really focused on the core AST business. The areas that we're looking at are primarily in central South America in the Caribbean right now. Some opportunities are we're activity bidding and some we're developing.

I would say we're being pretty cautious about these opportunities. But again, as I've mentioned before, we've got some talent, we've added a lot of good talent in this organization in the past year, which have experience in these particular areas. So we're starting to look at opportunities that fit our risk profile.

Operator

Our next question comes from Michael Harrison – First Analysis Corp.

Michael Harrison – First Analysis Corp.

I was wondering if you could talk about what was going on in the repair and maintenance business from a gross margin perspective for you to have revenues up year-over-year but margin lower year-over-year. And do you believe that's a temporary impact related to the market weakness or should we reduce our margin assumptions going forward related to other shifts that's gone on in your business?

Michael J. Bradley

Well I think as we've noted, we expected to see some margin pressures in our business just given the current environment and competition. So we did expect to see some margin decline in this business in the quarter and, as I stated earlier, we would expect to see some pressure on margins going forward.

So what we saw did not surprise us, it's what we expected. I think the key thing for us, as I mentioned, is we're trying to maintain a good balance of cost structure and resources, and Tom mentioned we did not fully recover our overhead costs in the quarter that was expected. So right now I'd expect to see margins continue to be challenged. I think our focus right now is we're being very selective in the kind of work we go after.

Michael Harrison – First Analysis Corp.

Then question with respect to the migration of contracts to more lump sum type of activity, obviously that involves you guys taking on more risks in a lot of cases, but in some cases it can result in greater rewards as well if you do execute well. Can you just talk about the risk and reward tradeoff of that migration, and does that help explain some of the improved gross margin in the construction business that you showed this quarter?

Michael J. Bradley

I think that your assessment in terms of risk and reward is correct. We have always maintained or we've had a lump sum mix of about 1/3. That mix is going to go up a bit we expect going forward given this environment. There's a lot of projects that we're very comfortable bidding lump sum and would prefer to bid lump sum, so again what we do is we take a look at what our capabilities and the risks that we see.

I think one of the challenges that we all have right now, Mike, is that it's not just lump sum contracts, it's terms and conditions that we're seeing that essentially put all the risk on a contractor. So we've got to balance the type of contracts terms and conditions along with lump sum. So that's a bit of challenge in this market as well. So again, we're being very selective in the type of projects we look at and we're avoiding contracts with term condition that we think put significant risk to our company and our shareholders. So it's a balancing act right now.

Operator

Our next question comes from Rich Wesolowski – Sidoti & Co.

Rich Wesolowski - Sidoti & Company

Is it accurate to say the company will sacrifice backlog growth in order to hold the bid margins steady so long as the market remains more competitive than it has been in the past?

Thomas Long

I think that's a fair statement, Rich. The important thing for us right now is to focus on profitability of our projects. I would tell you that building backlogs is not a problem right now we could have built backlogs in the quarter. The challenge, as I stated, are what we're seeing in terms and conditions that we think are putting way too much risk on the company.

So we're maneuvering through this and we're being selective on projects but, again, we're balancing the profitability for the long-term as well. So I think, as we stated, I don't want to build a strong backlog and be talking a year from now about why we're not making any money on it, so to answer your question, that's a fair assessment and that's how we're focusing on things.

Rich Wesolowski - Sidoti & Company

Given that that is the case will we see more reduction in your overhead expenses if perhaps you're not bidding as much work as you could? We saw the SG&A number come up this quarter for the first time in several quarters.

Michael J. Bradley

Well I think, as Tom stated, we have continued to reduce cost. I think SG&A is one element that we're reducing but also our construction overheads is another cost that you don't see it's built into our margins. So we're working on both elements of our cost structure as we go forward.

The thing that I think, as I stated again I want to emphasize, is that when you look at the bid funnel and the opportunities that we see developing, we want to make sure we've got the right resources in place to respond. And that's just the balancing act we're maintaining right now.

So SG&A is one element that we're working on and we continue to look at ways to reduce those costs, on the other hand we see some pretty interesting opportunities coming up and we're trying to stay positioned for the intermediate and long-term right now.

Rich Wesolowski - Sidoti & Company

Finally, can you paraphrase your recent discussions with customers or the potential customers in western Canada, specifically what they need to see before initiating the project that you're targeting and perhaps maybe if that criteria is any different from what you're hearing from client refineries in the U.S. to storage tank operating in the U.S.

Michael J. Bradley

I think clearly that the recovery in the oil sands is going to be important to clients to move forward with the projects. I think from our discussions, people, our clients and company still have maintaining a long-term view of crude oil and the importance of crude oil. So I think it's a matter of recovering the oil sands and crude oil prices will help. We are looking at some other projects that are not dependent on that as well. So I think the big upside becomes when the recovery occurs in the oil sands, but it's not necessarily the only projects that we're looking at today.

Operator

Our next question comes from Matt Duncan – Stephens Inc.

Matt Duncan - Stephens Incorporated

The first thing I've got is you gave earnings guidance but you did not mention revenue guidance and I'm just curious if you have any thoughts on what your revenues may look like in fiscal 2010. And also on this margin thing, you had 13% margin in the quarter, which is down from the first half of the year. Are you saying you expect margins at the gross line to deteriorate from this 13% range or just down from the 14 to 15 you had seen six months ago?

Thomas Long

Matt, as far as the revenue, we don't see that being materially different from the levels that we just came in with fiscal 2009, from that standpoint. So that's where you can kind of use for your revenue line. As far as the margin, I think as far as the margin, Matt, goes, I stated in my opening remarks I think we recognize there could be continued pressure on margins over the near-term and that's built into our plan.

Matt Duncan - Stephens Incorporated

Offsetting that, you guys are cutting some SG&A expense, so weakness on the growth margin line could be offset a little bit by SG&A cost cuts. Is that a fair way to look at it?

Michael J. Bradley

I think SG&A and again how we manage our construction overhead costs as well.

Matt Duncan – Stephens, Inc.

Mike, on acquisitions, you guys had $35 million in cash. I would assume that targets are a little bit more willing to talk about acquisition based off of more realistic expectations now that business is off. What sort of stuff are you guys looking at? And in terms of size, are you willing to use any debt with these cheap debt prices to make acquisitions or is your preference to do it out of cash?

Michael J. Bradley

Well, in terms of the acquisition opportunities, definitely seeing, I think, multiple expectations come down. We've looked at several opportunities in the past few months. I think the challenge that we're facing now is looking at companies and looking at backlog and what kind of backlog are you buying, that's an important factor in due diligence that's critical as well. I think all in all multiples have come down and they're definitely, I think, more reasonable than they were.

The other thing that we're seeing in some opportunities is just a lack of access to capital and liquidity. Good companies but they can't access liquidity and bonding capacity, and that's been a challenge on their business. So those are some opportunities that we like as well. I would tell you that we're not interested in taking on debt to do an acquisition right now. I think we're focused on liquidity and maintaining a good cash balance, so we're not really interested in taking on debt to do an acquisition, Matt.

Operator

Our next question comes from Tahira Afzal – Keybanc Capital.

Tahira Afzal – Keybanc Capital Markets

In terms of your guidance range, could you elaborate on the wideness of the guidance range and when you try to model out and come up with this guidance range, whether the variation is coming more from your revenue assumptions or from your margin assumptions?

Michael J. Bradley

Well, I think given the current environment we're in, it's a fairly wide range, but I think just given the uncertainty right now, I think it's reasonable. The other piece of it is, to your second question, is we've got some uncertainty about margins. We continue to execute well, but there's still uncertainty about margin pressure. There's also some uncertainty about projects that we feel have a very high probability of going forward that could get deferred or delayed.

So it's a combination of those factors, Tahira. I think that, from a revenue standpoint right now, as Tom mentioned, we don't see any material difference occurring in revenues for the year, so we're comfortable with the range that we gave.

Tahira Afzal – Keybanc Capital Markets

Then as I look at the downstream repair and maintenance revenues obviously exceptionally strong, as I look back in fact, I don't see that strength for a while. Did you just see a very strong sort of turnaround season this quarter or have you also been seeing some market share gains?

Michael J. Bradley

Yes, we had a good turnaround quarter, which we expected back when we talked during our third quarter earnings call, so that happened as expected. As I'll say, our turnaround business is lumpy, it goes through different cycles.

I think what we saw earlier in the year is turnaround in maintenance getting deferred. I think there are still deferrals happening in that area. You know it was interesting enough, we saw some turnarounds that got deferred way out come back so it's kind of a mixed bag right now. But I think that we did have a good quarter and repair and maintenance is an area that we continue to focus on building our market share.

Tahira Afzal – Keybanc Capital Markets

When you look at that revenue guidance, would you say that you've assumed that you can repeat a quarter like that or you've taken a more cautious approach?

Michael J. Bradley

I'd say, in general, we're taking a cautious approach to the entire fiscal year. I think that we benefited from SM in the quarter SM has a repair and maintenance business as well. We want to continue to build and expand the E&I repair and maintenance business, so we're really focused on all elements, but I think, in general, we're taking a fairly cautious tone for the next 12 months.

Tahira Afzal – Keybanc Capital Markets

Then in your construction revenue seeing, obviously, a great jump up in E&I is related to the acquisition. What kind of run rate should we assume on a quarterly basis and fiscal year again? Is that a good run rate for the segment?

Michael J. Bradley

Well, Tahira, I'll say it again, I think it's important that, again, our business is lumpy, all elements of our business is lumpy, and E&I is no different. You're going to see spend rates go up in certain quarters, down in certain quarters depending on weather. Obviously, summer is a fairly heavy run rate for the utilities so there tends to be less construction work going on and then comes fall and winter and that can flip so.

Tahira Afzal – Keybanc Capital Markets

If I look at your nuclear opportunities and as you talked about them earlier on, is there some incremental color on the timing over there?

Michael J. Bradley

I think that we continue to have discussions, but right now I don't see anything immediate. I think we've seen projects get pushed out so there's nothing really in our plans for 2010, other than we continue to be prepared and have our N stamp and capabilities in house. So I would say that those are probably pushed out a few years.

Tahira Afzal – Keybanc Capital Markets

Oh, so they're pushed out a few years?

Michael J. Bradley

Yes.

Tahira Afzal – Keybanc Capital Markets

Then in terms of your AST projects, if I was to look at, for example, projects like the [inaudible] 400, could you kind of give us some color on the size of projects such as those and the timeline over there?

Michael J. Bradley

I'm not going to comment on any particular project, but I will say that in our bid flow today we have some fairly sizable AST projects that we're looking at, so large dollars, large dollar magnitude projects 50 to 100 and up, but I'm not going to comment on any particular project. But I would say that we've got some pretty nice projects that we're working on right now.

Tahira Afzal – Keybanc Capital Markets

I noticed that you mentioned solar. Would love for you to touch on that and then I'll hop back.

Michael J. Bradley

Yes, what we're looking at in solar, Tahira, is the Molten Solar Energy Storage piece. They're steel plate structures, they're instead of cryogenic, they're high temperature specialized steel plate structures, which with the addition of the construction engineering assets we picked up plus some existing talent in Matrix, we have the capability to design, engineer and construct.

I think Solar has some potential going forward, but like all renewables, I think financing is still an issue, but we do have opportunities in-house that we're looking at and doing preliminary work on. So it's not a dream, it's something that we're working on. I think the question is when and where will these facilities actually get built.

Operator

Our next question comes from David Yuschak – SMH Capital.

David Yuschak – SMH Capital

Just a couple quick ones here, as far as your guidance, would it be fair to say that it's going to be more backend loaded between the $0.80 and $1.10 and the variability would be more on the construction services relative to any kind of variability that you may have out of maintenance.

Michael J. Bradley

Well, again, I'll say that our quarters are expected to be lumpy, and we stated that we expect calendar year 2009 to be challenging with some opportunities starting to emerge. So I'd say we see better opportunities in the back half than we do on the front half. On the other hand, we are bidding opportunities that could move forward that could change that, but right now I'd say we're still viewing calendar 2009 as a bit of a challenging second half of this year.

David Yuschak – SMH Capital

As far as the terms and conditions, I'm just kind of curious there as you look at what's been happening with terms and conditions now versus leading up to the kind of strong commodity environment we had a year ago, what in particular are the owners asking of you in the way of terms and conditions? Is it just because the uncertainty of the input costs here? What things are they kind of suggesting they need from you that you may find it more difficult to deliver on?

Michael J. Bradley

I think it's definitely a buyer's market right now, David, in terms of our business. And we see terms and conditions that are requesting unlimited LDs, consequential damages unlimited, it's various conditions like that that we just can't accept. Obviously, for reasons that I think you would understand, that puts the company at risk.

So I think, again, it's a balance and we're working with clients that are focused on the quality and the value proposition. But we also recognize that cost is very important and we're being very, very competitive. But I think very importantly about Matrix, is we want to deliver a quality project on time and on budget for our clients because that's what they're going to remember long-term.

Operator

Our next question comes from Matt Duncan – Stephens Incorporated.

Matt Duncan - Stephens Incorporated

Tom, on the change in year-end, I'm just thinking about how that may impact your seasonality. Typically your quarters have been 2Q and 4Q strong and then 1Q and 3Q have been a bit weaker.

With the month of December moving from the third quarter into the second quarter and then the spring turnaround season now being divided up a bit more between the third and fourth quarters, do you think that may mute the seasonality just in the underlying business a little bit, understanding obviously there's still going to be some lumpiness in when you guys perform some work.

Thomas Long

We really don't see any material difference, Matt, in how the timing will work on those quarters. It may have some small impact but I wouldn't say there would be anything of any materiality right now.

Matt Duncan - Stephens Incorporated

Then the other thing is I don't know if you can back out what SM Electric and CBI revenues were for this quarter and also how much of your backlog is attributable to those two just so we can kind of get a sense for what organic changes were year-over-year.

Thomas Long

Matt, we didn't break those out and really don't have plans on doing that. What I would say is that and maybe this will help is that we gave the guidance at the time of the acquisition on the SM Electric specifically of $70 million in revenue on a 12-month basis, and I can tell you that we still feel very good about, as Mike has mentioned.

But also, as Mike has mentioned, is that some of it can be lumpy, all of our various markets can be a little bit lumpy but we still from everything we've seen as we've gone through the integration, is that we still feel good about the $70 million.

Matt Duncan - Stephens Incorporated

Last thing here, Mike, when you talk about international opportunity and it sounds like you're looking mostly at ASTs. Have you signed a contract to do anything outside of the U.S. or Canada yet?

Michael J. Bradley

No, we have not signed any contracts.

Matt Duncan - Stephens Incorporated

Or actively pursuing that work?

Michael J. Bradley

We are actively pursuing, yes.

Operator

Our next question comes from Mike Harrison – First Analysis Corp.

Michael Harrison - First Analysis Corp

A couple more questions for you, was wondering if we could get some more details on the project that was cancelled during the quarter and the reasons for that cancellation? And also how much of an impact the cancellation had on your margins in terms of uncovered overhead and any costs that Matrix was left on the hook for?

Thomas Long

There were multiple projects, they weren't all that large, Mike, and there was no cost impact to us.

Michael Harrison - First Analysis Corp

Your margin in the construction business would have been higher, though. if not for the cancellation, is that correct?

Thomas Long

Not necessarily, no, because some of that might have been work that we would perform in later quarters.

Michael Harrison - First Analysis Corp

Then on the repair and maintenance side, the AST piece of that business, revenues there were the lowest they've been in a couple years, I was wondering if that's just related to the market weakness overall and maybe some customers looking for a band-aid type of lower cost fixes. Or is there a more strategic shift going on with respect to where you're focusing your resources right now.

Michael J. Bradley

Well first of all, we have not changed any of our focus, our strategic focus. The AST business and new construction repair and maintenance business continues to be a core part of our business and we have not changed any strategy relating to that. I think it's mainly just the market that has softened and we saw that happening last year. I mean, we saw projects on the drawing board really start to drop off in calendar year 2008 as the economy struggled and oil prices.

So I think a lot of stuff just got put on hold and deferred. We are starting to see some signs of some of those projects coming back. So no change in strategy, it's the market. And we still have a great talent base ready to respond and that's a business that we think we will always do well for Matrix.

Operator

(Operator Instructions) Our next question comes from Tahira Afzal – Keybanc Capital Markets.

Tahira Afzal - Keybanc Capital Markets

Just one last question, in regards to Solar, are you looking more than on the non-PV side and if you are looking, is it very preliminary right now? Have you sort of earmarked a couple of sponsors that you can potentially be discussing your opportunities with?

Michael J. Bradley

Well in terms of Solar, on the large scale Molten Solar projects we are discussing opportunities on that one. That's really focused on the steel plate structure side of the business. On the PV side, Tahira, we've seen some interesting things happen in the Northeast. SM has experience in sort of all takes. We've seen a lot of opportunities. I think that could be stimulus driven opportunities, so we're seeing that as well.

Tahira Afzal - Keybanc Capital Markets

The large scale opportunities, is there kind of a size or is it too early to speak of that right now?

Michael J. Bradley

It's too early to speak on that but generally they are of a pretty decent scale.

Operator

(Operator Instructions) I'm showing no further questions at this time. Gentlemen, do you have any closing remarks?

Michael J. Bradley

Yes, again, I want to thank everybody for joining us on the call today. And in closing I'd like to reiterate our current focus as we look into fiscal 2010. And, again, we will maintain our strong focus on executing our work in a safe manner. I think the other thing is to maintain our strong financial position, liquidity and financial flexibility, which we think is very important in this particular environment.

We're going to continue to focus on our high quality project execution and quality. Again, I think this market poses some interesting opportunities, but it also has some challenges in terms of the type of contracts and opportunities that we have to be very selective on. And then finally, we are still focused on the long-term growth strategy of this company and we'll continue to look at opportunities to further advance our strategy in our fiscal year 2010. We look forward to talking to you in the future and thanks again and have a great day.

Operator

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

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Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

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