Matrix Service Company (NASDAQ: MTRX) — FY2022 Form 10-K
Reporting period: Fiscal year ended June 30, 2022; comparisons are primarily with FY2021. Although the request metadata refers to “2021 Q4,” this filing reports FY2022 annual results, not a standalone quarterly period.
Business context
Matrix provides engineering, fabrication, construction, repair and maintenance services for energy and industrial infrastructure through Utility and Power Infrastructure, Process and Industrial Facilities, and Storage and Terminal Solutions. It served approximately 400 customers; two customers contributed 12.3% and 11.0% of FY2022 revenue.
Financial and operating performance
| Metric | FY2022 | FY2021 |
|---|---|---|
| Revenue | $707.8 million | $673.4 million |
| Gross profit (loss) / margin | ($1.2) million / (0.2)% | $32.8 million / 4.9% |
| Operating loss | ($87.9) million | ($43.7) million |
| Net loss / diluted loss per share | ($63.9) million / ($2.39) | ($31.2) million / ($1.18) |
| Cash from (used by) operations | ($54.2) million | ($3.0) million |
| Adjusted EBITDA (non-GAAP) | ($45.6) million | ($8.9) million |
Revenue rose 5.1%, but gross margin fell sharply, reflecting low project volume and overhead under-recovery, competitive pricing, inflation and higher estimated costs to finish certain fixed-price projects. SG&A declined to $67.7 million from $69.8 million. The company recorded $18.3 million of goodwill impairment and $0.6 million of restructuring costs.
- Utility and Power Infrastructure: revenue $220.1 million, up from $210.1 million; gross margin (3.9)% versus 0.7%.
- Process and Industrial Facilities: revenue $254.8 million, up from $199.9 million; gross margin 3.6% versus 8.8%. A midstream gas-processing project reduced FY2022 gross profit by $8.7 million.
- Storage and Terminal Solutions: revenue $232.8 million, down from $263.4 million; gross margin 0.1% versus 5.2%. A repair and maintenance project reduced gross profit by $6.3 million.
Liquidity and debt: Year-end unrestricted cash was $52.4 million, restricted cash was $25.0 million, and ABL availability was $42.5 million; reported total liquidity was $94.8 million. ABL borrowings were $15.0 million, with $23.3 million of letters of credit outstanding. Cash used in investing was offset by $39.0 million of asset-sale proceeds, including a $37.4 million sale-leaseback. The company reported $31.7 million of future operating lease payments and $5.6 million of deferred payroll taxes due by December 31, 2022.
Changes, outlook and notable items
- Backlog increased to $589.5 million from $462.6 million; FY2022 awards were $834.7 million and the total book-to-bill ratio was 1.2. The filing expects about 83% of year-end backlog to become revenue in FY2023. Separately, remaining performance obligations were $484.2 million, with $389.9 million expected as revenue within 12 months.
- Management expected higher FY2023 awards and revenue, improved cost absorption, margins and earnings, citing stronger bidding and improving markets. This is an expectation, not a quantified earnings or revenue forecast.
- A $32.4 million gain on the Orange, California facility sale-leaseback materially reduced the reported net loss; the transaction generated $37.4 million of cash proceeds. The company leased the property back for up to 24 months while seeking replacement facilities.
- In FY2022, operating cash outflow was $54.2 million. Management cited project delays, low revenue, competitive bids and cost increases as drivers, while stating liquidity was adequate for near- to intermediate-term needs.
- On October 5, 2022, the ABL lenders waived a filing-related event of default subject to delivery of audited statements by October 14; the filing was signed October 11. The amendment reduced the facility maximum from $100 million to $90 million and moved the benchmark to SOFR. At June 30, the company reported covenant compliance.
- The company placed a $17.9 million valuation allowance on deferred tax assets due to cumulative losses. It also reported $18.3 million of goodwill impairment and identified goodwill in several reporting units as vulnerable to future impairment if forecasts weaken.
- A $17.0 million receivable from an iron and steel customer remained subject to litigation. The company said it believed it was entitled to collect the full amount; outcomes remain uncertain. Unpriced change orders and claims included in contract assets were $8.9 million and may ultimately be realized differently.
- Supply-chain disruption, inflation and labor availability may raise costs or delay projects; fixed-price contracts, project execution, customer payment risk, workforce utilization, safety, and the cyclical energy and industrial markets are significant exposures. A third-party review of an immaterial project-cost allocation issue found no material weakness; management and the auditor concluded internal controls were effective. The auditor issued an unqualified opinion.
Important facts for investors to verify
- Whether FY2023 awards, revenue conversion and margin recovery meet management’s expectations, and how backlog compares with remaining performance obligations.
- Final costs and completion timing for the projects with cost overruns, including the midstream gas-processing project and two utility capital projects.
- Cash generation, borrowing-base availability, covenant headroom and repayment of deferred payroll taxes under the amended ABL Facility.
- Collection and resolution of the $17.0 million customer receivable and the $8.9 million of unpriced change orders and claims.
- Whether further goodwill impairments or tax-asset valuation changes arise if operating forecasts do not improve.