Matrix Service Company — Form 10-Q Summary
Reporting period: The filing is for the quarter ended March 31, 2014 (the company’s fiscal third quarter) and covers the three- and nine-month periods then ended. The request metadata says “2013 Q3,” which does not match the filing period.
Business context and performance
Matrix provides construction, maintenance, and related services across Electrical Infrastructure, Oil Gas & Chemical, Storage Solutions, and Industrial markets. Results can fluctuate with project timing, customer capital spending, seasonal conditions, and weather.
| Metric | Three months ended March 31, 2014 | Nine months ended March 31, 2014 |
|---|---|---|
| Revenue | $381.5 million, up 68.8% | $918.7 million, up 39.8% |
| Gross profit / margin | $39.9 million / 10.5% | $99.6 million / 10.8% |
| Operating income | $18.8 million | $44.4 million |
| Net income attributable to Matrix | $11.4 million | $28.3 million |
| Diluted EPS | $0.42 | $1.05 |
For comparison, year-earlier revenue was $226.0 million for the quarter and $657.0 million for nine months; Matrix-attributable net income was $6.5 million and $16.6 million, respectively. Nine-month EBITDA, a non-GAAP measure, was $57.3 million versus $34.5 million.
Segments and material changes
- Storage Solutions: Nine-month revenue rose 58.6% to $470.5 million, driven by tank work and terminal balance-of-plant projects. Segment operating income was $26.7 million. A $5.4 million project-estimate charge reduced nine-month operating income.
- Industrial: Nine-month revenue increased to $128.4 million from $27.8 million, largely reflecting the acquired business and higher mining/material-handling work. Segment operating income was $4.1 million versus a $1.7 million loss.
- Electrical Infrastructure: Nine-month revenue increased 5.7% to $132.2 million, including acquired activity, but operating income fell to $4.7 million from $8.4 million. Lower storm restoration activity, customer spending delays, and weaker margins affected results.
- Oil Gas & Chemical: Nine-month revenue declined 9.5% to $187.6 million, mainly on lower capital construction activity; operating income was $8.9 million versus $11.0 million.
Acquisition, cash flow, debt, and liquidity
- Matrix acquired Kvaerner North American Construction (Matrix NAC) effective December 21, 2013, for $88.1 million; net cash purchase price was $51.4 million after acquired cash. The acquisition expanded Electrical Infrastructure and Industrial operations. Matrix NAC contributed $69.4 million of nine-month revenue and $0.4 million of operating income. The company also recorded about $2.0 million of acquisition-related expenses.
- At March 31, 2014, cash was $59.8 million. Nine-month operating cash flow was $20.2 million, down from $37.3 million in the prior-year period. Receivables reduced operating cash by $59.0 million, primarily due to higher volume and billing timing.
- Investing activities used $68.9 million, including the acquisition and $17.8 million of capital expenditures. Financing activities provided $45.7 million, including net credit-facility borrowings.
- Borrowings under the senior credit facility were $45.1 million; availability was $137.9 million, including the effect of $17.0 million in letters of credit. The amended facility provides up to $200 million through March 2019. Total assets were $597.8 million and stockholders’ equity was $270.6 million.
- Management reported compliance with credit covenants and stated that cash, facility availability, and operating cash generation were expected to support business objectives. The company reported total available liquidity of approximately $197.7 million.
Outlook, risks, and unusual items
- Backlog was $905.1 million at March 31, 2014, up from $626.7 million at June 30, 2013; the filing reports $242.0 million of acquired backlog and $955.0 million of net awards over the nine-month period.
- The filing provides no specific revenue or earnings guidance. Management cautions that interim results may not predict future performance because of seasonality and project timing.
- The $5.4 million Storage Solutions project charge reflects a revised estimate on a loss-making tank project; the full projected loss was recorded. A separate project charge reduced operating income by $3.1 million in the prior-year nine-month period.
- Unapproved change orders and claims included in contract assets were $11.0 million. Collection may take longer than a year, and ultimate recovery may differ materially from recorded amounts. Certain acquired SME receivables also remain subject to mediation or litigation; recorded amounts include $0.7 million of claim receivables and $2.9 million due under contract.
- Other risks include contract execution and working-capital requirements, customer collection and dispute risks, insurance exposures, cyclical industry conditions, and acquisition integration. Management said the Matrix NAC goodwill allocation was preliminary and expected to complete its assessment in fiscal Q4 2014.
Important facts for investors to verify
- Confirm the intended period: this filing covers the quarter ended March 31, 2014, not 2013 Q3.
- Track collections, receivables, contract assets/liabilities, and operating cash flow as revenue and project volume grow.
- Assess whether the acquired Matrix NAC business improves profitability after acquisition costs and integration, and review the final goodwill allocation.
- Monitor Storage Solutions project execution, the recorded loss estimate, and recovery of change orders, claims, and disputed receivables.
- Review backlog conversion, segment margins, and continued compliance with credit-facility covenants.