Business context and reporting period
Matrix Service Company provides engineering, fabrication, construction, maintenance, and repair services through Utility and Power Infrastructure, Process and Industrial Facilities, and Storage and Terminal Solutions. The filing is a Form 10-Q for the quarter ended March 31, 2023 (fiscal 2023 third quarter), not 2022 Q3. Amounts below are in U.S. dollars; financial-statement figures are in millions unless otherwise noted.
Financial performance and position
| Metric | Three months ended March 31, 2023 | Prior-year comparable | Nine months ended March 31, 2023 | Prior-year comparable |
|---|---|---|---|---|
| Revenue | $186.9 | $177.0 | $589.2 | $507.1 |
| Gross profit (loss) / margin | $4.4 / 2.4% | ($1.8) / (1.0%) | $16.1 / 2.7% | ($2.1) / (0.4%) |
| Operating loss | ($12.8) | ($35.5) | ($50.3) | ($69.7) |
| Net loss / diluted loss per share | ($12.7) / ($0.47) | ($34.9) / ($1.30) | ($52.0) / ($1.93) | ($77.4) / ($2.90) |
| Adjusted EBITDA (non-GAAP) | ($7.7) | ($12.3) | ($20.0) | ($33.7) |
For the nine months, operating cash flow was $2.4 million, versus cash used of $22.5 million a year earlier; investing activities used $6.1 million, primarily for capital expenditures. Cash, cash equivalents, and restricted cash decreased $4.2 million from June 30, 2022. At March 31, unrestricted cash was $48.2 million and restricted cash was $25.0 million. The company reported $15.0 million of ABL borrowings, $19.3 million of letters of credit, and $44.2 million of facility availability, for stated total liquidity of $92.4 million. The borrowing rate was approximately 7.17%; the company reported compliance with facility covenants.
Total assets were $425.9 million and stockholders’ equity was $180.0 million, compared with $440.8 million and $227.7 million, respectively, at June 30, 2022. Goodwill fell to $29.7 million after a $12.3 million impairment. Current assets were $284.8 million and current liabilities were $208.4 million.
Material changes and operating drivers
- Quarterly revenue increased 5.6% year over year; nine-month revenue increased 16.2%. Higher Process and Industrial Facilities revenue more than offset lower Utility and Power Infrastructure revenue.
- Gross profit and margins improved against prior-year loss periods, but profitability remained weak. Management cited low revenue volumes and under-recovered construction overhead, competitively priced legacy work, and cost increases on certain projects.
- Process and Industrial Facilities recorded $12.7 million of gross-profit reductions over the nine months from revised change-order recovery and higher forecast costs on midstream gas-processing projects; $3.3 million was recorded in the quarter. The company says it accrued the full expected project loss and expects mechanical completion in July 2023.
- Quarterly segment revenue was $35.0 million for Utility and Power Infrastructure, $99.7 million for Process and Industrial Facilities, and $52.2 million for Storage and Terminal Solutions. Quarterly segment operating results were $0.9 million income, $0.5 million loss, and $6.6 million loss, respectively.
- Net contract liabilities increased to $61.3 million from $20.4 million at June 30, 2022, primarily reflecting higher customer advance billings. Management noted that upfront billings on recent large projects supported operating cash flow.
Outlook, risks, and unusual items
The company received $308.7 million of awards in the quarter, with a 1.7 book-to-bill ratio; fiscal-year-to-date awards were $862.0 million and management expected awards to exceed $1.0 billion for fiscal 2023. Backlog was $832.4 million at March 31, 2023, and remaining performance obligations were $542.7 million, of which $432.7 million was expected to be recognized as revenue within 12 months. Management said awards in Storage and Terminal Solutions were expected to begin substantially contributing to revenue in fiscal Q4. These are management expectations, not a full financial forecast; the filing provides no clear quantitative earnings or margin guidance.
Key uncertainties include project execution and cost estimates, scope changes and recovery of unpriced change orders, supply-chain constraints and inflation, customer payment and collection risk, labor utilization, award and project-start timing, and seasonal fluctuations. Unpriced change orders and claims included in contract assets totaled $14.7 million; ultimate recovery could differ materially. A disputed receivable from an iron and steel customer was $17.0 million, with litigation ongoing; collection is uncertain. The company also noted possible future goodwill impairment if project prospects or margins deteriorate, and continued valuation allowances on deferred tax assets because of cumulative losses. A $13.3 million CARES Act tax refund was received in the quarter. Restructuring costs were $2.9 million for the nine months, including costs associated with closing an underperforming office. The ABL facility restricts dividends and certain repurchases; no program repurchases were made in the nine-month period.
Important facts for investors to verify
- Whether the midstream gas-processing projects reach expected July 2023 mechanical completion without further cost or claim impacts.
- Whether recent awards convert into timely starts, revenue, and improved margins, particularly in Storage and Terminal Solutions.
- Collectability and timing of the $17.0 million disputed receivable and realization of the $14.7 million of unpriced change orders and claims.
- Cash conversion as contract billings, receivables, and project working capital fluctuate; facility availability and covenant headroom should also be monitored.
- Whether weak profitability, cumulative losses, or lower projected margins lead to additional goodwill impairment or affect deferred-tax-asset valuation allowances.