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Matrix Service Company Announces Fiscal 2020 Fourth Quarter and Full Year Results

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Matrix Service Company
·22 min read
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  • Fourth quarter revenue of $195.8 million and full year revenue of $1.101 billion

  • GAAP earnings (loss) per share for the quarter and fiscal year were $(0.22) and $(1.24), respectively; adjusted earnings (loss) per share(1) were $(0.01) and $0.40, after excluding restructuring costs and second quarter impairments

  • Fourth quarter book-to-bill of 1.2 on project awards of $227.2 million; backlog of $758.5 million at June 30, 2020

  • Implemented restructuring plan to achieve annualized cost savings of approximately $45 million, representing 18 percent of overhead costs

  • Liquidity of $193.4 million, including approximately $100 million of cash

TULSA, Okla., Sept. 02, 2020 (GLOBE NEWSWIRE) -- Matrix Service Company (Nasdaq: MTRX) today reported its financial results for the fourth quarter and year ended June 30, 2020.

“Matrix is in a strong financial position to weather continued market challenges, take advantage of growth opportunities, expand existing services, and enter new end-markets to meet the evolving business needs of our clients and communities,” said John R. Hewitt, President and Chief Executive Officer. “In response to the extreme market conditions of fiscal 2020, we reduced our cost structure to fit near-term revenue opportunities without hindering our ability to provide the highest quality of service now and as market recovery occurs. I am confident we have taken the right actions to position Matrix to deliver improving results as market conditions normalize.”

Update on Company Response to COVID-19 Pandemic

Throughout the course of the COVID-19 pandemic, the Company's top priority has been to maintain a safe working environment for all employees, customers and business partners. Our project teams, in coordination with our clients, continue to operate under new and enhanced work processes to integrate guidance from governmental agencies and leading health organizations to protect the health and safety of everyone on our job sites while maintaining productivity.

Due to the continuing uncertainty regarding the current and longer-term economic impacts from the COVID-19 pandemic, the Company undertook a business restructuring and recovery plan, which was balanced between the need to support near-term revenue expectations and our long-term view of the business opportunities. We successfully completed these actions during the fourth quarter of fiscal 2020 which we expect will save approximately $45 million in annual overhead costs, make us more competitive in the marketplace, and help preserve liquidity.

Fourth Quarter Fiscal 2020 Results

Consolidated

Revenue for the fourth quarter ended June 30, 2020 was $195.8 million compared to $398.7 million in the same period in the prior year. On a segment basis, revenue decreased by $105.1 million, $40.4 million, $31.0 million and $26.4 million in the Industrial, Oil Gas & Chemical, Electrical Infrastructure and Storage Solutions segments, respectively.

Consolidated gross profit was $19.2 million for the fourth quarter of 2020 compared to $43.7 million for the same period in the prior year. Gross margin for the fourth quarter of 2020 was 9.8% compared to 11.0% in the same period a year ago. While project execution in all four operating segments was strong during the fourth quarter of 2020, gross margin was negatively impacted in each segment by under recovery of construction overhead costs due to the sudden reduction in revenue volumes.

Selling, general and administrative costs were $19.7 million in the fourth quarter of 2020 compared to $26.3 million in the same period in the prior year. The change is attributable to incentive compensation costs in the prior fiscal year and savings from executing the previously announced restructuring plan in the current fiscal year.

The Company recorded $7.5 million of restructuring costs in the fourth quarter of 2020 due to actions taken under our restructuring plan.

Storage Solutions

The Storage Solutions segment represents the Company’s work related to aboveground storage tanks and full terminals for crude oil, refined products, LNG and NGLs. The Company provides services including engineering, fabrication, procurement, construction, construction management, maintenance and repair services. In the fourth quarter of 2020, the segment generated revenue of $122.6 million, compared to $149.1 million in the same period in the prior year. The gross margin was 10.7% in fiscal 2020 compared to 13.9% in the same period a year earlier. Project awards totaled $178.8 million, resulting in a 1.5 book-to-bill. Backlog at the end of the fourth quarter of 2020 was $576.7 million.

As a result of the COVID-19 pandemic, global energy demand, and regulatory issues, we experienced short-term suspensions of work on a limited number of projects, but work on most of these projects has resumed. In addition, some project awards and starts were delayed for durations varying from a few weeks to a few quarters.

Oil Gas & Chemical

The Company’s Oil Gas & Chemical segment includes revenue associated with refinery maintenance and repair, capital projects and turnarounds as well as natural gas processing, sulfur processing and handling, and the strategic growth area in chemical and petrochemical plants. In the fourth quarter of 2020, the segment generated revenue of $35.1 million, compared to $75.5 million in the same period in the prior year. The decrease was primarily due to lower levels of turnaround and refinery maintenance work. The gross margin was 14.4% in fiscal 2020 compared to 13.9% in the same period a year earlier. The fiscal 2020 gross margin benefited from strong project execution but was partially offset by the under recovery of construction overhead costs due to lower revenue. Project awards totaled $23.8 million, resulting in a 0.7 book-to-bill. Backlog at the end of the fourth quarter of 2020 was $121.0 million.

The short-term impact to the Company's refinery turnaround and maintenance operations as a result of the global pandemic has been significant. The impact has been exacerbated by the timing of the onset of the pandemic during what is normally a busy spring turnaround season. Although there have been delays and suspensions of planned seasonal work, in most cases the revenue volumes are moving out in time, not being eliminated. The updated start dates on many of the delayed activities are uncertain and will depend on the needs of our clients, safety guidelines, and market conditions.

Electrical Infrastructure

The Company's Electrical Infrastructure segment provides power delivery services, primarily to investor owned utilities, as well as emergency and storm restoration services. The Company also provides services in a variety of power generation facilities including combined cycle and other natural gas fired power stations. In the fourth quarter of 2020, the segment generated revenue of $22.9 million, compared to $53.9 million in the same period in the prior year. The decrease was due to lower levels of power delivery and power generation work. The gross margin was 4.0% in fiscal 2020 compared to 4.3% in the same period a year earlier. The fiscal 2020 gross margin benefited from strong project execution but was offset by the under recovery of construction overhead caused by low business volumes. Project awards totaled $15.4 million, resulting in a 0.7 book-to-bill. Backlog at the end of the fourth quarter of 2020 was $34.5 million.

As a result of the COVID-19 pandemic, we have experienced suspensions of work at certain job sites. We will continue to assess conditions in the areas we serve and resume normal operations based on client needs and safety guidelines to ensure the protection of our employees, subcontractors, and customers.

Industrial

The Industrial segment consists of work for various industries, including mining and minerals companies engaged primarily in the extraction of non-ferrous metals, aerospace and defense, cement, agriculture, and various industrial facilities. In the fourth quarter of 2020, the segment generated revenue of $15.2 million, compared to $120.2 million in the same period in the prior year. The decrease in revenue is primarily attributable to our strategic decision to exit the domestic iron and steel industry early in the third quarter of 2020. Our exit from having a continuous presence in the domestic iron and steel business is substantially complete. The gross margin was 1.2% in fiscal 2020 compared to 8.5% in the same period a year earlier. The fiscal 2020 gross margin benefited from strong project execution but was offset by the under recovery of construction overhead caused by trailing costs related to the exited domestic iron and steel business. Backlog at the end of the fourth quarter of 2020 was $26.3 million and was comprised of thermal vacuum chambers, mining and minerals, and miscellaneous industrial facilities.

Fiscal 2020 Results

Revenue for fiscal 2020 was $1.101 billion compared to $1.417 billion in fiscal 2019, a decrease of $315.7 million. On a segment basis, consolidated revenue decreased in the Industrial, Oil Gas & Chemical, and Electrical Infrastructure segments by $129.6 million, $118.9 million and $104.5 million, respectively. These decreases were partially offset by an increase in the Storage Solutions segment of $37.3 million.

Consolidated gross profit was $102.2 million in fiscal 2020 compared to $132.0 million in fiscal 2019. Gross margin was 9.3% in both fiscal 2020 and fiscal 2019. The gross margin in fiscal 2020 was positively impacted by strong project execution, offset by the under recovery of construction overhead costs due to lower than anticipated revenue volumes, particularly in the fourth quarter. Fiscal 2019 was positively impacted by higher revenue volumes, which led to an over recovery of construction overhead costs.

Consolidated SG&A expenses were $86.3 million in fiscal 2020 compared to $94.0 million in fiscal 2019. The decrease in fiscal 2020 was primarily attributable to significantly lower incentive compensation due to weaker operating results and savings from executing the restructuring plan in the last half of fiscal 2020.

The Company recorded non-cash goodwill and other intangible asset impairments of $38.5 million during the second quarter of fiscal 2020. In addition, the Company recorded $14.0 million of restructuring costs in the third and fourth quarters of fiscal 2020 due to actions taken under our restructuring plan and our response to the COVID-19 pandemic.

Income Tax Expense

The effective tax rates were 24.6% and 9.7% for the fourth quarter of 2020 and fiscal 2020, respectively. The tax benefit in fiscal 2020 was negatively impacted by $3.1 million of valuation allowances placed on certain deferred tax assets related to net operating loss carryforwards and other tax credits primarily in Canada and the non-deductible portion of the goodwill impairments booked in the second quarter of fiscal 2020 that would have resulted in a $1.8 million reduction of income tax expense. These negative impacts were partially offset by $1.8 million of research and development and other tax credits. The Company estimates that its fiscal 2021 effective tax rate will be approximately 27.0%.

Backlog

The Company’s backlog as of June 30, 2020 was $758.5 million. Project awards in the fourth quarter of 2020 and fiscal 2020 totaled $227.2 million and $859.5 million, respectively, resulting in book-to-bill ratios of 1.2 and 0.8, respectively.

Financial Position

At June 30, 2020, the Company had a cash balance of $100.0 million, borrowings of $9.2 million and liquidity of $193.4 million. Our liquidity continues to be adequate to fund our near- to intermediate-term needs.

Non-GAAP Financial Measure

(1) Adjusted earnings (loss) per share is a non-GAAP financial measure which excludes the financial impact of certain impairment charges, restructuring costs and tax reserves. See the Non-GAAP Financial Measures section included at the end of this release for a reconciliation to earnings per share.

Conference Call Details

In conjunction with the earnings release, Matrix Service Company will host a conference call / webcast with John R. Hewitt, President and CEO, and Kevin S. Cavanah, Vice President and CFO. The call will take place at 10:30 a.m. (Eastern) / 9:30 a.m. (Central) on Thursday, September 3, 2020 and will be simultaneously broadcast live over the Internet which can be accessed at the Company’s website at matrixservicecompany.com under Investor Relations, Events and Presentations. Please allow extra time prior to the call to visit the site and download the streaming media software required to listen to the Internet broadcast. The conference call will be recorded and will be available for replay within one hour of completion of the live call and can be accessed following the same link as the live call.

Dial in - Toll-Free 1-888-660-6127
Dial in - Toll 1-973-890-8355
Audience Passcode 4438155

About Matrix Service Company

Founded in 1984, Matrix Service Company (Nasdaq: MTRX) is parent to a family of companies that includes Matrix PDM Engineering, Matrix Service Inc., Matrix NAC, and Matrix Applied Technologies. Our companies design, build and maintain infrastructure critical to North America's energy and industrial markets. Matrix Service Company is headquartered in Tulsa, Oklahoma with offices located throughout the United States and Canada, as well as Sydney, Australia and Seoul, South Korea.

The Company reports its financial results based on four key operating segments: Electrical Infrastructure, Oil Gas & Chemical, Storage Solutions and Industrial. To learn more about Matrix Service Company, visit matrixservicecompany.com.

With a culture driven by its core values of safety, integrity, stewardship, positive relationships, community involvement and delivering the best, Matrix has twice been named to Forbes Top 100 Most Trustworthy Companies in America and is consistently recognized as a Great Place to Work®.

This release contains forward-looking statements that are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are generally accompanied by words such as “anticipate,” “continues,” “expect,” “forecast,” “outlook,” “believe,” “estimate,” “should” and “will” and words of similar effect that convey future meaning, concerning the Company’s operations, economic performance and management’s best judgment as to what may occur in the future. Future events involve risks and uncertainties that may cause actual results to differ materially from those we currently anticipate. The actual results for the current and future periods and other corporate developments will depend upon a number of economic, competitive and other influences, including the successful implementation of the Company's business improvement plan and the factors discussed in the “Risk Factors” and “Forward Looking Statements” sections and elsewhere in the Company’s reports and filings made from time to time with the Securities and Exchange Commission. Many of these risks and uncertainties are beyond the control of the Company, and any one of which, or a combination of which, could materially and adversely affect the results of the Company's operations and its financial condition. We undertake no obligation to update information contained in this release, except as required by law.

For more information, please contact:

Kevin S. Cavanah
Vice President and CFO
T: 918-838-8822
Email: kcavanah@matrixservicecompany.com

Kellie Smythe
Senior Director, Investor Relations
T: 918-359-8267
Email: ksmythe@matrixservicecompany.com

Matrix Service Company
Consolidated Statements of Income
(In thousands, except per share data)

Three Months Ended

Twelve Months Ended

June 30,
2020

June 30,
2019

June 30,
2020

June 30,
2019

Revenue

$

195,837

$

398,714

$

1,100,938

$

1,416,680

Cost of revenue

176,604

354,976

998,762

1,284,729

Gross profit

19,233

43,738

102,176

131,951

Selling, general and administrative expenses

19,702

26,349

86,276

94,021

Goodwill and other intangible asset impairment

38,515

Restructuring costs

7,451

14,010

Operating income (loss)

(7,920

)

17,389

(36,625

)

37,930

Other income (expense):

Interest expense

(366

)

(342

)

(1,597

)

(1,296

)

Interest income

23

304

1,270

1,167

Other

676

29

308

611

Income (loss) before income tax expense

(7,587

)

17,380

(36,644

)

38,412

Provision (benefit) for federal, state and foreign income taxes

(1,865

)

4,568

(3,570

)

10,430

Net income (loss)

$

(5,722

)

$

12,812

$

(33,074

)

$

27,982

Basic earnings (loss) per common share

$

(0.22

)

$

0.48

$

(1.24

)

$

1.04

Diluted earnings (loss) per common share

$

(0.22

)

$

0.47

$

(1.24

)

$

1.01

Weighted average common shares outstanding:

Basic

26,140

26,807

26,621

26,891

Diluted

26,140

27,521

26,621

27,587


Matrix Service Company
Consolidated Balance Sheets
(In thousands)

June 30,
2020

June 30,
2019

Assets

Current assets:

Cash and cash equivalents

$

100,036

$

89,715

Accounts receivable, less allowances (2020 - $905; 2019 - $923)

160,671

218,432

Costs and estimated earnings in excess of billings on uncompleted contracts

59,548

96,083

Inventories

6,460

8,017

Income taxes receivable

3,919

29

Other current assets

4,526

5,034

Total current assets

335,160

417,310

Property, plant and equipment, at cost:

Land and buildings

42,695

41,179

Construction equipment

94,154

91,793

Transportation equipment

55,864

52,526

Office equipment and software

39,356

43,632

Construction in progress

4,427

7,619

Total property, plant and equipment - at cost

236,496

236,749

Accumulated depreciation

(155,748

)

(157,414

)

Property, plant and equipment - net

80,748

79,335

Operating lease right-of-use assets

21,375

Goodwill

60,369

93,368

Other intangible assets

8,837

19,472

Deferred income taxes

5,988

2,683

Other assets

4,833

21,226

Total assets

$

517,310

$

633,394


Matrix Service Company
Consolidated Balance Sheets (continued)
(In thousands, except share data)

June 30,
2020

June 30,
2019

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

$

73,094

$

114,647

Billings on uncompleted contracts in excess of costs and estimated earnings

63,889

105,626

Accrued wages and benefits

16,205

38,357

Accrued insurance

7,301

9,021

Operating lease liabilities

7,568

Income taxes payable

2,517

Other accrued expenses

7,890

5,331

Total current liabilities

175,947

275,499

Deferred income taxes

61

298

Operating lease liabilities

19,997

Borrowings under senior secured revolving credit facility

9,208

5,347

Other liabilities

4,208

293

Total liabilities

209,421

281,437

Commitments and contingencies

Stockholders’ equity:

Common stock—$.01 par value; 60,000,000 shares authorized; 27,888,217 shares issued as of June 30, 2020 and June 30, 2019; 26,141,528 and 26,807,203 shares outstanding as of June 30, 2020 and June 30, 2019

279

279

Additional paid-in capital

138,966

137,712

Retained earnings

206,402

239,476

Accumulated other comprehensive income

(8,373

)

(7,751

)

337,274

369,716

Less treasury stock, at cost — 1,746,689 and 1,081,014 shares as of June 30, 2020 and June 30, 2019

(29,385

)

(17,759

)

Total stockholders' equity

307,889

351,957

Total liabilities and stockholders’ equity

$

517,310

$

633,394


Results of Operations

(In thousands)

Electrical
Infrastructure

Oil Gas &
Chemical

Storage
Solutions

Industrial

Total

Three Months Ended June 30, 2020

Gross revenue

$

22,917

$

35,583

$

123,193

$

15,231

$

196,924

Less: inter-segment revenue

468

576

43

1,087

Consolidated revenue

22,917

35,115

122,617

15,188

195,837

Gross profit

919

5,044

13,094

176

19,233

Restructuring costs

1,841

2,441

296

2,873

7,451

Operating income (loss)

$

(2,737

)

$

(1,571

)

$

2,476

$

(6,088

)

$

(7,920

)

Three Months Ended June 30, 2019

Gross revenue

$

53,874

$

75,568

$

149,543

$

120,239

$

399,224

Less: inter-segment revenue

23

487

510

Consolidated revenue

53,874

75,545

149,056

120,239

398,714

Gross profit

2,315

10,469

20,736

10,218

43,738

Intangible asset impairments and restructuring costs

Operating income (loss)

$

(309

)

$

4,089

$

8,726

$

4,883

$

17,389

Twelve Months Ended June 30, 2020

Gross revenue

$

112,890

$

203,404

$

562,439

$

228,827

$

1,107,560

Less: inter-segment revenue

2,454

3,240

928

6,622

Consolidated revenue

112,890

200,950

559,199

227,899

1,100,938

Gross profit (loss)

(1,105

)

15,822

71,934

15,525

102,176

Intangible asset impairments and restructuring costs

27,855

3,850

1,296

19,524

52,525

Operating income (loss)

$

(36,503

)

$

(7,328

)

$

27,306

$

(20,100

)

$

(36,625

)

Twelve Months Ended June 30, 2019

Gross revenue

$

217,417

$

322,065

$

524,330

$

357,464

$

1,421,276

Less: inter-segment revenue

2,198

2,398

4,596

Consolidated revenue

217,417

319,867

521,932

357,464

1,416,680

Gross profit

15,470

35,987

56,011

24,483

131,951

Intangible asset impairments and restructuring costs

Operating income

$

3,668

$

12,984

$

14,097

$

7,181

$

37,930

Backlog

We define backlog as the total dollar amount of revenue that we expect to recognize as a result of performing work that has been awarded to us through a signed contract, limited notice to proceed or other type of assurance that we consider firm. The following arrangements are considered firm:

  • fixed-price awards;

  • minimum customer commitments on cost plus arrangements; and

  • certain time and material arrangements in which the estimated value is firm or can be estimated with a reasonable amount of certainty in both timing and amounts.

For long-term maintenance contracts with no minimum commitments and other established customer agreements, we include only the amounts that we expect to recognize as revenue over the next 12 months. For arrangements in which we have received a limited notice to proceed, we include the entire scope of work in our backlog if we conclude that the likelihood of the full project proceeding as high. For all other arrangements, we calculate backlog as the estimated contract amount less revenue recognized as of the reporting date.

Three Months Ended June 30, 2020

The following table provides a summary of changes in our backlog for the three months ended June 30, 2020:

Electrical
Infrastructure

Oil Gas &
Chemical

Storage
Solutions

Industrial

Total

(In thousands)

Backlog as of March 31, 2020

$

42,099

$

132,278

$

520,483

$

32,196

$

727,056

Project awards

15,355

23,792

178,838

9,261

227,246

Revenue recognized

(22,917

)

(35,115

)

(122,617

)

(15,188

)

(195,837

)

Backlog as of June 30, 2020

$

34,537

$

120,955

$

576,704

$

26,269

$

758,465

Book-to-bill ratio(1)

0.7

0.7

1.5

0.6

1.2


(1) Calculated by dividing project awards by revenue recognized.

Twelve Months Ended June 30, 2020

The following table provides a summary of changes in our backlog for the twelve months ended June 30, 2020:

Electrical
Infrastructure

Oil Gas &
Chemical

Storage
Solutions

Industrial

Total

(In thousands)

Backlog as of June 30, 2019

$

73,883

$

134,563

$

641,295

$

248,608

$

1,098,349

Project awards

73,544

194,013

494,608

97,364

859,529

Project cancellations(1)

(6,671

)

(91,804

)

(98,475

)

Revenue recognized

(112,890

)

(200,950

)

(559,199

)

(227,899

)

(1,100,938

)

Backlog as of June 30, 2020

$

34,537

$

120,955

$

576,704

$

26,269

$

758,465

Book-to-bill ratio(2)

0.7

1.0

0.9

0.4

0.8


(1) Industrial cancellations related to the deterioration of our relationship with a key customer in the iron and steel industry and the subsequent cancellation of work, the cancellation of a coke battery project in Canada, and cancellation of work due to the final wind-down of our domestic iron and steel maintenance business following our strategic decision to exit the business. Cancellations in the Oil Gas & Chemical segment consist of turnaround work transferred to a local contractor as a result of COVID-19 precautions.
(2) Calculated by dividing project awards by revenue recognized.

Non-GAAP Financial Measures

In order to more clearly depict the core profitability of the Company, the following table presents our net income (loss) and earnings (loss) per fully diluted share for the fourth quarter and fiscal year ended 2020 after adjusting for certain impairment charges, restructuring costs, and tax reserves:

Reconciliation of Adjusted Net Income (Loss) and Diluted Earnings (Loss) per Common Share(1)
(In thousands, except per share data)

Three Months Ended June 30, 2020

Fiscal Year Ended June 30, 2020

Amount
of
Charge

Income
Tax
Effect of
Charge

Net
Income
(Loss)

Earnings
(Loss)
Per
Diluted
Share

Net
Income
(Loss)

Earnings
(Loss)
Per
Diluted
Share

Net loss per common share, as reported

$

(5,722

)

$

(0.22

)

$

(33,074

)

$

(1.24

)

Restructuring costs incurred

$

14,010

$

(3,369

)

5,544

0.21

10,641

0.39

Electrical Infrastructure segment goodwill impairment

24,900

(4,889

)

20,011

0.74

Industrial segment goodwill and other intangible asset impairment

13,615

(2,803

)

10,812

0.40

Valuation allowance placed on a deferred tax asset

2,417

2,417

0.09

Adjustment for dilutive effect of using basic shares for net loss

0.02

Adjusted net income (loss) and diluted earnings (loss) per common share

$

(178

)

$

(0.01

)

$

10,807

$

0.40

Weighted average common shares outstanding - diluted:

As reported

26,140

26,621

Previously anti-dilutive common shares

490

Adjusted weighted average common shares outstanding - diluted

26,140

27,111

(1) This table presents non-GAAP financial measures of our adjusted net income (loss) and adjusted diluted earnings (loss) per common share for the fourth quarter and fiscal year ended 2020. The most directly comparable financial measures are net loss and net loss per common share, respectively, presented in the Consolidated Statements of Income. We have presented these non-GAAP financial measures because we believe they more clearly depict the core operating results of the Company during the periods presented and provide a more comparable measure of the Company's operating results to other companies considered to be in similar businesses. Since adjusted net income (loss) and adjusted diluted earnings (loss) per common share are not measures of performance calculated in accordance with GAAP, they should be considered in addition to, rather than as a substitute for, the most directly comparable GAAP financial measures.