Matrix Service Company (Nasdaq: MTRX), a leading
contractor to the energy and industrial markets across North
America, today reported financial results for its first quarter of
fiscal 2021.
Key highlights:
- First quarter revenue was $182.8 million resulting in a
loss per diluted share of $0.12 due to the continued impact of the
global pandemic and related market disruptions
- Strong project execution was offset by lower than
expected revenue volume which resulted in under recovery of
construction overhead costs, significantly impacting gross
margins
- SG&A was $18.1 million in the quarter after
realization of planned cost reductions
- Backlog at the end of the quarter was $678.4 million;
project awards of $102.7 million for the quarter
- Liquidity of $133.9 million at September 30, 2020,
including cash of $82.2 million
- Extends revolving credit facility to November
2023
“The pandemic has continued to impact many of
our clients, especially those in the energy industry, who are
managing through low product demand and rigid health and safety
protocols, as well as political uncertainty, all of which has
resulted in delayed and reduced spending priorities. In spite of
reduced revenue volumes, our project execution and consolidated
direct margins have been very strong. In addition, I am extremely
proud of our teams’ ability to manage not only the additional
burden of maintaining a COVID-safe work environment, but also
driving a zero-incident safety performance in the quarter,” said
John R. Hewitt, President and CEO.
“Overall, bidding opportunities are improving
and our project opportunity funnel is returning to normal, however,
client decision making in this environment may affect the timing of
awards and starts. It is our expectation that bookings and revenue
will improve as we move into the second half of this fiscal year.
This improvement in business conditions, combined with our
restructuring and continuing cost reduction efforts position us to
deliver better financial results. We remain focused on safety,
winning work, and executing our backlog. We will keep a strong
balance sheet through controlling costs, minimizing capital
expenditures, managing cash flow, and maintaining minimal or no
debt.”
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 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.
Change of Reportable Segments
Due to changing markets facing our clients and
to better align the financial reporting of the Company with our
long-term strategic growth areas, we began reporting our financial
results under new reportable segments effective July 1, 2020.
The new reportable segments along with a description of each are as
follows:
- Utility and Power Infrastructure: consists of
power delivery services provided to investor owned utilities,
including construction of new substations, upgrades of existing
substations, transmission and distribution line installations,
upgrades and maintenance, as well as emergency and storm
restoration services. The Company also provides construction
and maintenance services to a variety of power generation
facilities, including gas fired facilities in simple or combined
cycle design, and provides engineering, fabrication, and
construction services for liquefied natural gas ("LNG") utility
peak shaving facilities.
- Process and Industrial Facilities: primarily
serves customers in the downstream and midstream petroleum
industries who are engaged in refining crude oil and processing,
fractionating, and marketing of natural gas and natural gas
liquids. The Company also serves customers in various other
industries such as petrochemical, sulfur, mining and minerals
companies engaged primarily in the extraction of non-ferrous
metals, aerospace and defense, cement, agriculture, and other
industrial customers. The Company's services include plant
maintenance, turnarounds, industrial cleaning services,
engineering, fabrication, and capital construction.
- Storage and Terminal Solutions: consists of
work related to aboveground storage tanks and terminals. Also
included in this segment are cryogenic and other specialty storage
tanks and terminals including LNG, liquid nitrogen/liquid oxygen,
liquid petroleum and other specialty vessels such as spheres as
well as marine structures and truck and rail loading/offloading
facilities. The Company's services include engineering,
fabrication, construction, and maintenance and repair, which
includes planned and emergency services for both tanks and full
terminals. Finally, the Company offers tank products,
including geodesic domes, aluminum internal floating roofs,
floating suction and skimmer systems, roof drain systems and
floating roof seals.
All prior period segment information has been
restated to conform with our new reportable segments. In
addition, beginning July 1, 2020, the Company reported separately
corporate selling, general and administrative expenses and other
corporate expenses that were previously allocated to the
segments.
First Quarter Fiscal 2021 Results
Consolidated
Consolidated revenue was $182.8 million for the
three months ended September 30, 2020, compared to $338.1 million
in the same period in the prior fiscal year. On a segment
basis, revenue decreased for the Process and Industrial Facilities
and Storage and Terminal Solutions segments by $108.9 million, and
$59.3 million, respectively. These decreases were partially
offset by an increase in the Utility and Power Infrastructure
segment of $12.9 million.
Consolidated gross profit decreased to $14.4
million in the three months ended September 30, 2020 compared to
$32.5 million in the same period in the prior fiscal year.
Gross margin decreased to 7.9% in the three months ended September
30, 2020 compared to 9.6% in the same period in the prior fiscal
year. Despite generally strong project execution, gross
margins in fiscal 2021 were lower than fiscal 2020 due to lower
than forecasted volumes, which led to higher under recovery of
construction overhead costs.
Consolidated SG&A expenses were $18.1
million in the three months ended September 30, 2020 compared to
$23.7 million in the same period a year earlier. The decrease
is primarily attributable to cost reductions we implemented under
our business improvement and restructuring plan that began in late
fiscal 2020 and lower incentive compensation.
Utility and Power Infrastructure
Revenue for the Utility and Power Infrastructure
segment was $60.7 million in the three months ended September 30,
2020 compared to $47.7 million in the same period a year
earlier. The increase is due to a higher volume of LNG
utility peak shaving work, partially offset by lower volumes of
power delivery and power generation work. The segment gross
margin was 11.4% in fiscal 2021 and (0.4)% in fiscal 2020.
The fiscal 2021 segment gross margin was positively impacted by
strong project execution on LNG utility peak shaving capital
projects and power delivery work.
In the second quarter of fiscal 2020, the
Company announced a business improvement plan for the former
Electrical Infrastructure segment, which is now included in the
Utility and Power Infrastructure segment. The plan included
significant changes to the operations and management of the
business, including changes to leadership and mid-level operational
personnel, modifications to operational processes, and increased
business development resources. During the second half of
fiscal 2020, we implemented the planned personnel changes, added
business development resources and strengthened business
processes. These changes led to improved project execution,
which has continued through the first quarter of fiscal 2021.
Process and Industrial Facilities
Revenue for the Process and Industrial
Facilities segment was $45.9 million in the three months ended
September 30, 2020 compared to $154.9 million in the same period a
year earlier. The decrease is primarily due to our strategic
exit from the domestic iron and steel industry in the third quarter
of fiscal 2020, lower volumes of turnaround and refinery
maintenance work, and reduced spending on midstream gas processing
projects. The segment gross margin was 8.0% for the three
months ended September 30, 2020 compared to 8.8% in the same period
last year. Project execution in fiscal 2021 was strong, but
gross margin was negatively impacted by lower revenue volumes,
which led to the under recovery of construction overhead costs.
The short-term impact to the Company's refinery
turnaround and maintenance operations as a result of the global
pandemic continues to be significant. Although there have
been project delays and suspensions of planned seasonal work, in
most cases the revenue volumes are moving out in time, but not
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 the market.
Storage and Terminal Solutions
Revenue for the Storage and Terminal Solutions
segment was $76.2 million in the three months ended September 30,
2020 compared to $135.5 million in the same period a year
earlier. The decrease in segment revenue is primarily a
result of lower volumes of tank and crude oil terminal capital work
and less repair and maintenance work. The segment gross
margin was 5.0% in the three months ended September 30, 2020
compared to 14.6% in the three months ended September 30,
2019. The fiscal 2021 segment gross margin was negatively
impacted by lower revenue volumes, which led to the under recovery
of construction overhead costs, and a lower than previously
forecasted margin on a crude oil storage terminal capital project
nearing completion.
As a result of the COVID-19 pandemic, global
energy demand, and regulatory issues, we continue to experience
slower project award activity that began in the third quarter of
fiscal 2020.
Income Tax Expense
The effective tax rates were (9.8)% and 30.6%
for the first quarter of 2021 and fiscal 2020, respectively.
The effective tax rate for the first quarter of fiscal 2021 was
negatively impacted by a $1.0 million deferred tax asset
adjustment. The Company estimates that its fiscal 2021
effective tax rate will be approximately 27.0%.
Backlog
Backlog at September 30, 2020 was $678.4
million. The quarterly book-to-bill ratio was 0.6 on project
awards of $102.7 million.
Financial Position
At September 30, 2020 the Company had total liquidity of
$133.9 million, which includes $51.7 million of availability under
the credit facility and a cash balance of $82.2 million.
During the quarter, the cash balance decreased $17.9 million
primarily as a result of an investment in working capital.
The Company's outstanding borrowings were $9.4 million at
September 30, 2020.
Credit Facility Extension
On November 2, 2020, the Company extended its
credit agreement. The credit agreement provides for a
three-year senior secured revolving credit facility of $200.0
million that expires on November 2, 2023. Through the
extension of the credit agreement, the Company has right-sized the
revolving credit facility, which is sufficient to meet operating
needs. The new facility provides additional financial
flexibility related to potential capital allocation alternatives,
including share repurchases. Terms of the credit agreement
will be disclosed in the Company’s Form 10-Q.
Conference Call / Webcast
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, November 5, 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: 1-888-660-6127Dial in -
Toll: 1-973-890-8355Audience Passcode: 5467745
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 three reportable segments: Utility and Power Infrastructure,
Process and Industrial Facilities, and Storage and Terminal
Solutions. 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. CavanahVice President and CFOT: 918-838-8822Email:
kcavanah@matrixservicecompany.com
Kellie SmytheSenior Director, Investor RelationsT:
918-359-8267Email: ksmythe@matrixservicecompany.com
Matrix Service
CompanyCondensed Consolidated Statements of
Income(unaudited)(In thousands,
except per share data)
|
|
Three Months Ended |
|
|
September 30, 2020 |
|
September 30, 2019 |
Revenue |
|
$ |
182,771 |
|
|
$ |
338,097 |
|
Cost of revenue |
|
168,421 |
|
|
305,632 |
|
Gross profit |
|
14,350 |
|
|
32,465 |
|
Selling, general and
administrative expenses |
|
18,128 |
|
|
23,691 |
|
Restructuring costs |
|
(320 |
) |
|
— |
|
Operating income (loss) |
|
(3,458 |
) |
|
8,774 |
|
Other income (expense): |
|
|
|
|
Interest expense |
|
(375 |
) |
|
(389 |
) |
Interest income |
|
33 |
|
|
474 |
|
Other |
|
1,033 |
|
|
3 |
|
Income (loss) before income tax
expense |
|
(2,767 |
) |
|
8,862 |
|
Provision for federal, state and
foreign income taxes |
|
270 |
|
|
2,711 |
|
Net income (loss) |
|
$ |
(3,037 |
) |
|
$ |
6,151 |
|
|
|
|
|
|
Basic earnings (loss) per common
share |
|
$ |
(0.12 |
) |
|
$ |
0.23 |
|
Diluted earnings (loss) per
common share |
|
$ |
(0.12 |
) |
|
$ |
0.22 |
|
Weighted average common shares
outstanding: |
|
|
|
|
Basic |
|
26,265 |
|
|
26,935 |
|
Diluted |
|
26,265 |
|
|
27,575 |
|
Matrix Service
CompanyCondensed Consolidated Balance
Sheets(unaudited)(In
thousands)
|
September 30, 2020 |
|
June 30, 2020 |
Assets |
|
|
|
Current assets: |
|
|
|
Cash and cash equivalents |
$ |
82,175 |
|
|
$ |
100,036 |
|
Accounts receivable, less allowances (September 30, 2020—$830 and
June 30, 2020—$905) |
171,504 |
|
|
160,671 |
|
Costs and estimated earnings in excess of billings on uncompleted
contracts |
57,694 |
|
|
59,548 |
|
Inventories |
6,751 |
|
|
6,460 |
|
Income taxes receivable |
4,071 |
|
|
3,919 |
|
Other current assets |
9,144 |
|
|
4,526 |
|
Total current assets |
331,339 |
|
|
335,160 |
|
Property, plant and equipment
at cost: |
|
|
|
Land and buildings |
42,845 |
|
|
42,695 |
|
Construction equipment |
95,332 |
|
|
94,154 |
|
Transportation equipment |
53,460 |
|
|
55,864 |
|
Office equipment and software |
41,896 |
|
|
39,356 |
|
Construction in progress |
2,648 |
|
|
4,427 |
|
Total property, plant and equipment - at cost |
236,181 |
|
|
236,496 |
|
Accumulated depreciation |
(156,743 |
) |
|
(155,748 |
) |
Property, plant and equipment - net |
79,438 |
|
|
80,748 |
|
Operating lease right-of-use
assets |
20,152 |
|
|
21,375 |
|
Goodwill |
60,437 |
|
|
60,369 |
|
Other intangible assets, net
of accumulated amortization |
8,287 |
|
|
8,837 |
|
Deferred income taxes |
5,684 |
|
|
5,988 |
|
Other assets |
6,893 |
|
|
4,833 |
|
Total assets |
$ |
512,230 |
|
|
$ |
517,310 |
|
Matrix Service
CompanyCondensed Consolidated Balance Sheets
(continued)(unaudited)(In
thousands, except share data)
|
September 30, 2020 |
|
June 30, 2020 |
Liabilities and
stockholders’ equity |
|
|
|
Current liabilities: |
|
|
|
Accounts payable |
$ |
68,615 |
|
|
$ |
73,094 |
|
Billings on uncompleted contracts in excess of costs and estimated
earnings |
63,523 |
|
|
63,889 |
|
Accrued wages and benefits |
16,682 |
|
|
16,205 |
|
Accrued insurance |
7,657 |
|
|
7,301 |
|
Operating lease liabilities |
6,585 |
|
|
7,568 |
|
Other accrued expenses |
7,157 |
|
|
7,890 |
|
Total current liabilities |
170,219 |
|
|
175,947 |
|
Deferred income taxes |
34 |
|
|
61 |
|
Operating lease liabilities |
18,820 |
|
|
19,997 |
|
Borrowings under senior secured revolving credit facility |
9,383 |
|
|
9,208 |
|
Other liabilities |
7,754 |
|
|
4,208 |
|
Total liabilities |
206,210 |
|
|
209,421 |
|
Commitments and
contingencies |
|
|
|
Stockholders’ equity: |
|
|
|
Common stock—$.01 par value; 60,000,000 shares authorized;
27,888,217 shares issued as of September 30, 2020 and June 30,
2020; 26,460,196 and 26,141,528 shares outstanding as of September
30, 2020 and June 30, 2020 |
279 |
|
|
279 |
|
Additional paid-in capital |
132,687 |
|
|
138,966 |
|
Retained earnings |
203,365 |
|
|
206,402 |
|
Accumulated other comprehensive loss |
(7,969 |
) |
|
(8,373 |
) |
|
328,362 |
|
|
337,274 |
|
Less: Treasury stock, at cost — 1,428,021 shares as of September
30, 2020, and 1,746,689 shares as of June 30, 2020 |
(22,342 |
) |
|
(29,385 |
) |
Total stockholders'
equity |
306,020 |
|
|
307,889 |
|
Total liabilities and
stockholders’ equity |
$ |
512,230 |
|
|
$ |
517,310 |
|
Matrix Service
CompanyResults of
Operations(unaudited)(In
thousands)
|
|
Three Months Ended |
|
|
September 30, 2020 |
|
September 30, 2019 |
Gross
revenue |
|
|
|
|
Utility and Power Infrastructure |
|
$ |
60,671 |
|
|
$ |
47,727 |
|
Process and Industrial
Facilities |
|
46,728 |
|
|
155,452 |
|
Storage and Terminal
Solutions |
|
77,596 |
|
|
136,001 |
|
Total gross revenue |
|
$ |
184,995 |
|
|
$ |
339,180 |
|
Less: Inter-segment
revenue |
|
|
|
|
Process and Industrial
Facilities |
|
$ |
797 |
|
|
$ |
575 |
|
Storage and Terminal
Solutions |
|
1,427 |
|
|
508 |
|
Total inter-segment revenue |
|
$ |
2,224 |
|
|
$ |
1,083 |
|
Consolidated
revenue |
|
|
|
|
Utility and Power
Infrastructure |
|
$ |
60,671 |
|
|
$ |
47,727 |
|
Process and Industrial
Facilities |
|
45,931 |
|
|
154,877 |
|
Storage and Terminal
Solutions |
|
76,169 |
|
|
135,493 |
|
Total consolidated revenue |
|
$ |
182,771 |
|
|
$ |
338,097 |
|
Gross profit
(loss) |
|
|
|
|
Utility and Power
Infrastructure |
|
$ |
6,913 |
|
|
$ |
(168 |
) |
Process and Industrial
Facilities |
|
3,659 |
|
|
13,590 |
|
Storage and Terminal
Solutions |
|
3,778 |
|
|
19,742 |
|
Corporate |
|
— |
|
|
(699 |
) |
Total gross profit |
|
$ |
14,350 |
|
|
$ |
32,465 |
|
Selling, general and
administrative expenses |
|
|
|
|
Utility and Power
Infrastructure |
|
$ |
2,222 |
|
|
$ |
2,632 |
|
Process and Industrial
Facilities |
|
4,050 |
|
|
6,938 |
|
Storage and Terminal
Solutions |
|
5,143 |
|
|
6,986 |
|
Corporate |
|
6,713 |
|
|
7,135 |
|
Total selling, general and administrative expenses |
|
$ |
18,128 |
|
|
$ |
23,691 |
|
Restructuring
costs |
|
|
|
|
Utility and Power
Infrastructure |
|
$ |
11 |
|
|
$ |
— |
|
Process and Industrial
Facilities |
|
(500 |
) |
|
— |
|
Storage and Terminal
Solutions |
|
13 |
|
|
— |
|
Corporate |
|
156 |
|
|
— |
|
Total Restructuring costs |
|
$ |
(320 |
) |
|
$ |
— |
|
Operating income
(loss) |
|
|
|
|
Utility and Power
Infrastructure |
|
$ |
4,680 |
|
|
$ |
(2,800 |
) |
Process and Industrial
Facilities |
|
109 |
|
|
6,652 |
|
Storage and Terminal
Solutions |
|
(1,378 |
) |
|
12,756 |
|
Corporate |
|
(6,869 |
) |
|
(7,834 |
) |
Total operating income (loss) |
|
$ |
(3,458 |
) |
|
$ |
8,774 |
|
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 is high. For all other arrangements,
we calculate backlog as the estimated contract amount less revenues
recognized as of the reporting date.
The following table provides a summary of changes in our backlog
for the three months ended September 30, 2020:
|
Utility and Power Infrastructure |
|
Process and Industrial Facilities |
|
Storage and Terminal
Solutions |
|
Total |
|
(In thousands) |
Backlog as of June 30, 2020 |
$ |
272,816 |
|
|
$ |
145,725 |
|
|
$ |
339,924 |
|
|
$ |
758,465 |
|
Project awards |
21,318 |
|
|
50,796 |
|
|
30,619 |
|
|
102,733 |
|
Revenue recognized |
(60,671 |
) |
|
(45,931 |
) |
|
(76,169 |
) |
|
(182,771 |
) |
Backlog as of September 30,
2020 |
$ |
233,463 |
|
|
$ |
150,590 |
|
|
$ |
294,374 |
|
|
$ |
678,427 |
|
Book-to-bill ratio(1) |
0.4 |
|
|
1.1 |
|
|
0.4 |
|
|
0.6 |
|
(1) Calculated by
dividing project awards by revenue recognized during the
period.
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