Matrix Service Company — FY2020 Form 10-K
Reporting period: Fiscal year ended June 30, 2020, filed September 3, 2020. The supplied filing is not a 2019 fourth-quarter report; it includes FY2020 results and unaudited quarterly data.
Business context
Matrix provides engineering, fabrication, construction, maintenance and repair services, principally to energy, power, petrochemical and industrial markets, and sells aboveground storage-tank products. FY2020 segments were Electrical Infrastructure, Oil Gas & Chemical, Storage Solutions, and Industrial. The company plans to report three reorganized segments beginning in FY2021.
Financial results and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $1,100.9 million | $1,416.7 million |
| Gross profit / margin | $102.2 million / 9.3% | $132.0 million / 9.3% |
| Operating income (loss) | $(36.6) million | $37.9 million |
| Net income (loss) | $(33.1) million; $(1.24) per diluted share | $28.0 million; $1.01 per diluted share |
| Adjusted EBITDA (non-GAAP) | $36.6 million | $57.9 million |
| Cash from operations | $44.1 million | $41.4 million |
Cash was $100.0 million at year-end; working capital was $159.2 million. Revolver borrowings were $9.2 million, with $93.4 million available. Total stated liquidity was $193.4 million, down from $241.9 million a year earlier, primarily reflecting reduced revolver availability. The company reported compliance with its credit-facility covenants. Capital expenditures were $18.5 million; financing activities used $16.0 million, including $17.0 million of open-market repurchases. No cash dividends have been paid.
Changes and operating performance
- Revenue fell $315.7 million year over year. Management cited lower activity and COVID-19-related delays, particularly in Industrial, Oil Gas & Chemical, and Electrical Infrastructure.
- Storage Solutions was the exception: revenue increased to $559.2 million from $521.9 million, and gross margin rose to 12.9% from 10.7%, supported by tank and terminal work and project execution.
- Electrical Infrastructure revenue fell to $112.9 million from $217.4 million; it recorded a 1.0% gross loss, following poor execution and lower volumes. Oil Gas & Chemical revenue fell to $201.0 million from $319.9 million, with gross margin declining to 7.9% from 11.3%. Industrial revenue fell to $227.9 million from $357.5 million; gross margin was 6.8% in both years.
- Despite lower revenue, consolidated gross margin held at 9.3%. Management attributed this to strong execution, offset by under-recovered construction overhead as volumes weakened; FY2019 had benefited from higher-volume overhead recovery.
- FY2020 included $38.5 million of goodwill and intangible-asset impairment charges and $14.0 million of restructuring costs. Management’s non-GAAP adjusted net income was $10.8 million, or $0.40 per diluted share, excluding specified restructuring, impairment and tax-valuation charges. This is not GAAP net income.
- Backlog declined to $758.5 million from $1,098.3 million; book-to-bill was 0.8. The company expected to recognize about 72% of year-end backlog as FY2021 revenue. Separately, remaining performance obligations were $566.4 million, with approximately $429.0 million expected to be recognized within 12 months.
Outlook, risks and unusual items
Management gave no specific FY2021 revenue or earnings guidance in the provided filing. It cited uncertainty from the pandemic, customer spending caution, delayed project awards, shifted refinery turnarounds and temporarily suspended work. The company expanded cost reductions, workforce reductions and office closures; these initiatives were substantially complete at year-end, with planned annual operating-cost savings of approximately $45 million. Management said the improvement plan’s long-term effectiveness, particularly in Electrical Infrastructure, remained uncertain.
- The company exited its domestic iron and steel maintenance business after a key customer relationship deteriorated and work was canceled. It commenced litigation to collect $17.8 million in receivables from that customer; collection timing was uncertain.
- Unpriced change orders and claims included in contract assets totaled $14.5 million, compared with $10.1 million a year earlier; ultimate realization may differ materially.
- Three goodwill reporting units, with $14.2 million combined goodwill at year-end, were identified as at higher risk of future impairment. Project opportunities, margins and valuation assumptions could change.
- Principal risks include pandemic-related disruptions, cyclical customer capital and maintenance spending, commodity-price effects on customers, fixed-price contract overruns, project delays or cancellations, customer credit and collection risk, workforce utilization, safety and environmental claims, and credit-facility covenant capacity.
- Off-balance-sheet support included $41.0 million of letters of credit and $202.0 million of surety bonds. The revolving facility expires February 2022 and has leverage and fixed-charge coverage covenants.
The independent auditor issued an unqualified opinion on the FY2020 financial statements and internal controls; management and the auditor reported internal control over financial reporting was effective.
Important facts for investors to verify
- Whether the $17.8 million iron-and-steel customer receivable is collected, and whether litigation or other customer disputes create additional charges.
- Whether delayed projects resume and backlog converts to revenue as expected, given the 0.8 book-to-bill ratio and the differing backlog and remaining-performance-obligation measures.
- Whether the $45 million planned annual savings are achieved without impairing staffing, safety, execution or future awards.
- Whether Electrical Infrastructure performance improves and whether any of the higher-risk goodwill units require further impairment.
- Quarterly unaudited data show FY2020 fourth-quarter revenue of $195.8 million and a net loss of $5.7 million; compare these with the filing’s FY2019 fourth-quarter figures and later reported results.