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

• 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
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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: [e-mail]  

Kellie Smythe
Senior Director, Investor Relations
T: 918-359-8267
Email: [e-mail] 

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.