Matrix Service Company — FY2023 Form 10-K
Reporting period: Fiscal year ended June 30, 2023. Matrix provides engineering, fabrication, construction, maintenance and related services for energy and industrial infrastructure through Storage and Terminal Solutions, Utility and Power Infrastructure, and Process and Industrial Facilities. This is an annual report, not a calendar-year or standalone fourth-quarter report.
Financial performance
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $795.0 million | $707.8 million |
| Gross profit (loss) / margin | $30.8 million / 3.9% | $(1.2) million / (0.2)% |
| Operating loss | $(52.9) million | $(87.9) million |
| Net loss / diluted loss per share | $(52.4) million / $(1.94) | $(63.9) million / $(2.39) |
| Adjusted EBITDA (non-GAAP) | $(17.7) million | $(45.6) million |
| Cash provided by (used in) operations | $10.2 million | $(54.2) million |
Revenue increased 12.3% year over year. Process and Industrial Facilities revenue rose $115.0 million and Storage and Terminal Solutions rose $22.9 million; Utility and Power Infrastructure fell $50.6 million. Gross margin returned to positive territory but remained low, reflecting overhead under-recovery, difficult project execution and cost pressures. FY2023 included a $12.3 million goodwill impairment, $3.1 million restructuring costs, and a $2.9 million gain on sale of the industrial cleaning business. FY2022 included an $18.3 million goodwill impairment and a $32.4 million sale-leaseback gain.
Liquidity, debt and balance sheet
- Cash and cash equivalents were $54.8 million; an additional $25.0 million was restricted. ABL availability was $37.7 million, for reported total liquidity of $92.5 million.
- ABL borrowings were $10.0 million, down from $15.0 million a year earlier; the variable rate on outstanding borrowings was approximately 7.47%. The facility matures September 9, 2026. The company reported compliance with its covenants at year-end.
- Operating cash flow improved from a $54.2 million use to $10.2 million provided. Cash generation included working-capital effects, including increased customer advance billings and a $13.3 million tax refund.
- Total assets were $400.5 million and stockholders’ equity was $181.5 million. The company reported a $40.5 million net contract liability position (billings in excess of costs and estimated earnings).
Backlog, outlook and management commentary
- Fiscal 2023 project awards were $1.33 billion; year-end backlog reached $1.09 billion, the highest since fiscal 2019. The book-to-bill ratio was 1.7.
- Management expected revenue growth in fiscal 2024 to exceed fiscal 2023 growth and anticipated improving margins as revenue volume increased and prior cost reductions supported overhead absorption. Approximately 54% of year-end backlog was expected to convert to revenue in fiscal 2024. Some large new awards were not expected to begin until the second half of fiscal 2024 and would be recognized over multiple years.
- Management cited opportunities in LNG, hydrogen, power delivery, refinery maintenance, mining and minerals, chemicals and renewable fuels. Project timing and awards remain cyclical and subject to delays, changes or cancellation.
Risks, contingencies and notable items
- Project execution and estimates: Fixed-price contracts and percentage-of-completion accounting require estimates of costs to complete. Unpriced change orders, claims, scope changes, inflation and supply-chain problems may reduce margins or require future adjustments.
- Project losses: Midstream gas processing work reduced FY2023 gross profit by $12.6 million; the company said it had accrued the full expected loss and that the work was mechanically complete.
- Litigation and collections: The company disclosed disputes involving $5.6 million due from a mining customer, a $32.7 million crude-oil-terminal receivable subject to arbitration and counterclaims, and a $17.0 million unpaid iron-and-steel customer receivable subject to litigation. Management believes it is entitled to collect the amounts; outcomes remain uncertain.
- Goodwill and taxes: An interim test resulted in a $12.3 million impairment in Process and Industrial Facilities. The annual test found no further impairment, but three reporting units with $20.9 million of goodwill were identified as at higher risk of future impairment. A valuation allowance substantially limits recognition of deferred tax assets amid cumulative losses.
- Other exposures: Risks include labor availability and utilization, customer credit and concentration (one customer represented 10.7% of revenue), safety and environmental claims, multiemployer pension obligations, interest-rate changes, and access to bonding and letters of credit. The company reported prior cybersecurity threats and attacks but no material financial impact to date.
- The independent auditor issued an unqualified opinion on the financial statements and internal controls. Management and the auditor concluded internal control over financial reporting was effective as of June 30, 2023.
Key facts for investors to verify
- Whether new awards convert to revenue on schedule and at the margins management anticipates, especially large LNG and power projects.
- Progress on margin recovery, overhead utilization and the remaining financial effects of challenged fixed-price and midstream projects.
- Collections and legal outcomes for the three disclosed customer disputes, including the related receivables, contract assets and claims.
- Liquidity and borrowing-base availability as project working-capital needs change; also monitor variable-rate debt and covenant headroom.
- Whether backlog remains firm and profitable, given potential project delays, scope changes, cancellations and management’s backlog conversion assumptions.
- Future impairment risk and the ability to use deferred tax assets if operating results improve.