Matrix Service Company — FY2019 Form 10-K
Reporting period: Fiscal year ended June 30, 2019. The filing also presents unaudited fourth-quarter results; despite the request metadata, this is not a fiscal 2018 Q4 filing. Matrix provides engineering, fabrication, construction, maintenance and storage-tank products across Electrical Infrastructure, Oil Gas & Chemical, Storage Solutions and Industrial markets.
Financial performance and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $1,416.7 million | $1,091.6 million |
| Gross profit / margin | $132.0 million / 9.3% | $91.9 million / 8.4% |
| Operating income (loss) / margin | $37.9 million / 2.7% | $(10.5) million / (1.0)% |
| Net income (loss) | $28.0 million | $(11.5) million |
| Diluted EPS | $1.01 | $(0.43) |
| Cash from operations | $41.4 million | $74.7 million |
Revenue increased 29.8% year over year. Gross margin improved with higher volumes and better overhead recovery, particularly as higher-margin capital work increased in the second half. Operating results also rebounded from FY2018, which included $18.0 million of goodwill and intangible-asset impairment charges.
Fourth quarter: Revenue was $398.7 million, gross profit $43.7 million, operating income $17.4 million, net income $12.8 million and diluted EPS $0.47. In Q4 FY2018, revenue was $293.1 million, operating loss was $17.1 million and net loss was $14.7 million.
Segments: FY2019 revenue and gross margin were Electrical Infrastructure $217.4 million and 7.1%; Oil Gas & Chemical $319.9 million and 11.3%; Storage Solutions $521.9 million and 10.7%; and Industrial $357.5 million and 6.8%. Storage Solutions and Industrial generated the largest year-over-year revenue gains. Electrical Infrastructure revenue declined, while Industrial margin eased due to a lower-than-forecast margin on a thermal vacuum chamber project.
Liquidity and debt: Cash was $89.7 million, working capital $141.8 million and total reported liquidity $241.9 million, including $152.2 million available under the revolving facility. Revolver borrowings were $5.3 million. Covenant EBITDA was $68.6 million and covenant-defined funded indebtedness was $53.5 million; the company reported compliance with its credit covenants. Operating cash flow fell year over year, primarily reflecting working-capital uses, including receivables, contract balances and long-term retentions. Capital expenditures were $19.6 million.
Changes, outlook and material considerations
- Backlog declined to $1.098 billion from $1.219 billion; awards were $1.296 billion against revenue recognized of $1.417 billion, for a 0.9 book-to-bill ratio. Management expected approximately 85% of reported backlog to be recognized within 12 months.
- Remaining performance obligations were $823.3 million, of which $656.4 million was expected to be recognized within 12 months. This measure is defined separately from backlog.
- Management expected an FY2020 effective tax rate of approximately 27%. The filing gives no overall revenue or earnings guidance.
- Management cited stronger second-half volumes of higher-margin capital work and improved construction-overhead recovery. Electrical Infrastructure remained affected by the strategic shift away from full EPC power-generation projects and by weaker-than-expected margins on certain power-delivery work.
- FY2019 included a $3.9 million cash sale of a non-core process-heating business and a $0.4 million gain. The annual goodwill impairment test found no impairment, but management identified certain reporting units as more exposed to future impairment if project prospects or gross margins deteriorate.
- Reported unpriced change orders and claims included in contract assets were $10.1 million, versus $15.0 million a year earlier; ultimate recovery may differ materially. The company also faces project-estimate, fixed-price contract, customer-collection, commodity/tariff, workforce, safety, litigation, environmental and cyclical-market risks.
- Surety bonds and letters of credit supporting ordinary-course obligations totaled $340.7 million. Potential withdrawal or termination liabilities for multiemployer pension plans were not ascertainable in the filing. The company reported an effective internal-control assessment and unqualified audit opinions.
Most important facts for investors to verify
- Whether backlog conversion, new awards and the 0.9 book-to-bill ratio support sustained revenue growth.
- Whether improved project mix and execution persist, particularly in Storage Solutions and Industrial, and whether Electrical Infrastructure margins recover.
- Whether operating cash flow improves as receivables, contract assets, retentions and vendor-payment timing normalize.
- Whether the $10.1 million of unpriced change orders and claims is collected, and whether contract-cost estimates or customer disputes lead to earnings adjustments.
- Whether goodwill headroom, customer concentration, pension-plan exposure and credit-facility covenant capacity change materially.