Matrix Service Company — Form 10-Q Summary
Reporting period: The filing covers the quarter and nine months ended March 31, 2020 (fiscal 2020 third quarter), filed May 7, 2020. This differs from the request metadata, which says 2019 Q3.
Business context and results
Matrix provides engineering, construction, maintenance and related services through Electrical Infrastructure, Oil Gas & Chemical, Storage Solutions and Industrial segments. Its results were affected by lower project volumes, the planned exit from domestic iron and steel work, COVID-19 disruptions and crude-oil market volatility.
| Metric | Three months ended Mar. 31, 2020 | Three months ended Mar. 31, 2019 | Nine months ended Mar. 31, 2020 | Nine months ended Mar. 31, 2019 |
|---|---|---|---|---|
| Revenue | $248.3M | $358.9M | $905.1M | $1,018.0M |
| Gross profit / margin | $20.5M / 8.2% | $36.9M / 10.3% | $82.9M / 9.2% | $88.2M / 8.7% |
| Operating income (loss) | $(5.8)M | $12.8M | $(28.7)M | $20.5M |
| Net income (loss) | $(5.5)M | $8.9M | $(27.4)M | $15.2M |
| Diluted EPS | $(0.21) | $0.33 | $(1.02) | $0.55 |
Financial position, cash flow and segments
- Nine-month operating cash flow was $31.5M, compared with cash used of $1.1M a year earlier. Capital expenditures were $17.7M; cash declined $2.2M to $87.5M.
- At March 31, 2020, total liabilities were $255.9M and equity was $311.4M. Revolver borrowings were $8.9M; availability under the facility was $128.8M. Including cash, stated available liquidity was $216.3M. The company reported compliance with its credit covenants. Covenant EBITDA was $64.4M and consolidated funded indebtedness was $64.2M.
- For the quarter, Storage Solutions revenue rose to $143.7M and segment operating income was $6.5M. Revenue declined in Electrical Infrastructure ($28.4M), Oil Gas & Chemical ($52.3M) and Industrial ($23.9M); each reported an operating loss. Segment results reflect lower volumes and overhead under-recovery, with Oil Gas & Chemical also affected by an underperforming equipment purchase on a capital project.
- Backlog was $727.1M at quarter-end, down from $872.2M at December 31, 2019; quarterly book-to-bill was 0.5. Remaining performance obligations were $536.7M, of which $431.2M was expected to be recognized within 12 months.
Material changes, outlook and risks
- Nine-month results included $38.5M of goodwill and intangible-asset impairments and $6.6M of restructuring charges. Goodwill impairments in the second quarter included $24.9M in Electrical Infrastructure and $8.0M in Industrial, plus a $5.6M customer-relationship intangible impairment.
- The company expanded its restructuring plan in response to lower expected revenue for the remainder of fiscal 2020 and fiscal 2021. It expected another $4M–$6M of restructuring charges in fiscal Q4 and projected approximately $40M in annual operating-cost savings when the plan is complete. It also suspended share repurchases and eliminated noncritical capital expenditures for at least the remainder of fiscal 2020 and early fiscal 2021.
- Management cited COVID-19, crude-oil supply-and-demand disruption, delayed or cancelled work, longer award cycles, job-site suspensions and uncertain customer spending. It said many delayed turnaround activities may shift in timing rather than be eliminated, but revised start dates remained uncertain. Near-term and intermediate-term effects could materially harm results, liquidity and financial condition.
- Three reporting units had $14.1M of goodwill with low headroom at March 31. Management warned further market deterioration could result in significant additional impairment. A $16.5M receivable from an iron-and-steel customer was subject to litigation; collection timing was uncertain. Unpriced change orders and claims included $10.8M in contract assets, and ultimate recovery could differ materially.
- Adjusted EBITDA, a non-GAAP measure, was $5.0M for the quarter and $31.6M for the nine months, versus $17.7M and $35.6M, respectively, in the comparable 2019 periods. The company reported adjusted nine-month net income of $11.0M, or $0.40 per diluted share, excluding specified charges; this is not GAAP net income.
Important facts for investors to verify
- Confirm the intended period: the supplied filing is fiscal Q3 2020, not 2019 Q3.
- Track backlog conversion, project awards and cancellations, especially the effect of COVID-19 and oil-market conditions on customer spending and delayed work.
- Monitor liquidity, revolver availability and covenant capacity as revenue and cash requirements change.
- Assess execution and realization of the projected $40M annual savings against additional restructuring costs and any further asset impairments.
- Follow collection of the disputed $16.5M receivable and realization of the $10.8M in unpriced change orders and claims.