Business context and reporting period
Matrix Service Company’s Form 10-K covers the fiscal year ended June 30, 2021, not calendar 2020 Q4. The company provides engineering, fabrication, construction, and maintenance services across utility and power infrastructure, process and industrial facilities, and storage and terminal solutions. Results were affected by COVID-19 disruption and customer spending reductions. Fiscal 2021 segment reporting was reorganized; prior-period segment data was restated.
Key financial metrics
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $673.4 million | $1,100.9 million |
| Gross profit / margin | $32.8 million / 4.9% | $102.2 million / 9.3% |
| Operating loss | $43.7 million | $36.6 million |
| Net loss / diluted loss per share | $31.2 million / $1.18 | $33.1 million / $1.24 |
| Adjusted EBITDA (non-GAAP) | $(8.9) million | $46.5 million |
| Cash from operations | $(3.0) million | $44.1 million |
| Capital expenditures | $4.4 million | $18.5 million |
| Cash and cash equivalents at year-end | $83.9 million | $100.0 million |
| Working capital | $137.8 million | $159.2 million |
| Long-term debt at year-end | $0 | $9.2 million |
| Backlog at year-end | $462.6 million | $758.5 million |
Revenue fell 38.8% year over year. Process and Industrial Facilities revenue declined to $199.9 million from $421.9 million; Storage and Terminal Solutions declined to $263.4 million from $467.1 million; Utility and Power Infrastructure was $210.1 million, slightly below $212.0 million. Gross margin contracted amid lower volume and overhead under-recovery, cost increases on major projects, and a contract-dispute settlement.
Material changes, outlook, and management commentary
- Management attributed the downturn to the pandemic, customer project delays and reduced spending, and the strategic exit from the domestic iron and steel market. The company reduced its cost structure by more than $60 million; restructuring charges were $6.8 million in FY2021 and $14.0 million in FY2020.
- Backlog awards were $451.7 million, with a 0.7 book-to-bill ratio. Management expects about 85% of year-end backlog to convert to revenue in FY2022. Separately, remaining performance obligations were $365.6 million, of which $297.6 million was expected to be recognized within 12 months. No formal revenue or earnings guidance is provided.
- Management described strong power-delivery bidding activity, a building pipeline for LNG peak-shaving work, increased refinery maintenance activity, and opportunities in mining, chemicals, LNG, ammonia, NGLs, and hydrogen-related infrastructure. Crude-oil storage opportunities remain limited and long-term demand is uncertain amid the energy transition.
- FY2021 gross profit included a $5.8 million reduction from cost increases on a large utility/power project, a $3.8 million reduction on a crude-oil terminal project, and a $2.9 million reduction from a contract-dispute settlement. The settlement produced an $8.9 million cash receipt in FY2022. One customer represented 12.9% of FY2021 revenue.
- On September 9, 2021, after year-end, the company entered a new asset-based facility of up to $100 million, subject to a borrowing base, with $25.9 million availability and $43.5 million in letters of credit outstanding at closing. It requires at least $25 million of restricted cash and includes a conditional fixed-charge coverage covenant. The company also reported an unpaid $17.0 million receivable from an iron-and-steel customer that was in litigation.
- Key risks include persistent COVID-19 and supply-chain disruption, higher material and labor costs, variable project awards, fixed-price contract overruns, customer nonpayment, backlog changes, and potential goodwill impairment. The annual impairment test found no impairment, but $37.7 million of goodwill across four reporting units was identified as at higher risk of future impairment. Additional restructuring costs were expected in FY2022.
Investor verification checklist
- Check subsequent results and cash conversion against the FY2022 backlog and remaining-performance-obligation expectations.
- Review the new ABL facility’s borrowing-base availability, restricted-cash requirement, letters of credit, and covenant headroom as conditions change.
- Track resolution and collection of the $17.0 million iron-and-steel customer receivable and any associated legal or credit-loss effects.
- Assess whether major project estimates, unpriced change orders, and claims are realized as recorded; $14.6 million of such amounts was included in contract assets at year-end.
- Monitor segment gross margins, utilization and overhead recovery, materials costs, and the identified goodwill impairment sensitivities.