Matrix Service pany(MTRX) - 2023 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements This section presents Matrix Service Company's unaudited condensed consolidated financial statements, including income, balance sheets, and cash flows, reporting a net loss of $12.7 million for Q3 FY2023 and $52.0 million for the nine months ended March 31, 2023 Condensed Consolidated Statements of Income Condensed Consolidated Statements of Income (In thousands, except per share data) | | Three Months Ended March 31, | Nine Months Ended March 31, | | :--- | :--- | :--- | | | 2023 | 2022 | 2023 | 2022 | | Revenue | $186,895 | $177,003 | $589,166 | $507,061 | | Gross profit (loss) | $4,419 | $(1,763) | $16,125 | $(2,064) | | Operating loss | $(12,759) | $(35,538) | $(50,290) | $(69,690) | | Net loss | $(12,686) | $(34,899) | $(52,025) | $(77,356) | | Diluted loss per common share | $(0.47) | $(1.30) | $(1.93) | $(2.90) | Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (In thousands) | | March 31, 2023 | June 30, 2022 | | :--- | :--- | :--- | | Total current assets | $284,764 | $287,412 | | Total assets | $425,947 | $440,793 | | Total current liabilities | $208,409 | $177,785 | | Total liabilities | $245,944 | $213,087 | | Total stockholders' equity | $180,003 | $227,706 | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (Nine Months Ended March 31, In thousands) | | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided (used) by operating activities | $2,403 | $(22,517) | | Net cash used by investing activities | $(6,102) | $(85) | | Net cash used by financing activities | $(110) | $(1,850) | | Net decrease in cash, cash equivalents and restricted cash | $(4,167) | $(24,786) | | Cash, cash equivalents and restricted cash, end of period | $73,204 | $59,092 | Notes to Condensed Consolidated Financial Statements These notes detail accounting policies, revenue recognition, goodwill impairment, debt, and segment performance, highlighting $542.7 million in remaining performance obligations and a $12.3 million goodwill impairment - As of March 31, 2023, the company had $542.7 million of remaining performance obligations, expecting to recognize $432.7 million as revenue within the next twelve months[36] - A goodwill impairment charge of $12.3 million was recognized in the Process and Industrial Facilities segment during Q2 FY2023, triggered by adverse changes in gross profit on midstream gas processing projects[49] - The company's ABL facility has a maximum borrowing limit of $90.0 million, with a borrowing base of $78.5 million, $15.0 million outstanding, and $44.2 million in availability as of March 31, 2023[56][57] - Restructuring costs for the nine months ended March 31, 2023, totaled $2.9 million, primarily severance and personnel-related costs, as part of the business improvement plan[85][86] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, highlighting a 1.7 book-to-bill ratio in Q3 FY2023, $186.9 million consolidated revenue, and $92.4 million total liquidity as of March 31, 2023 Results of Operations Consolidated revenue for Q3 FY2023 was $186.9 million, with gross profit improving to $4.4 million, while nine-month revenue reached $589.2 million with $16.1 million gross profit - The company achieved a book-to-bill ratio of 1.7 for Q3 FY2023, with project awards totaling $308.7 million, marking the seventh consecutive quarter above 1.0[91] Financial Performance Comparison (Three Months Ended March 31, in millions) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Consolidated Revenue | $186.9M | $177.0M | | Consolidated Gross Profit (Loss) | $4.4M | $(1.8)M | | Consolidated Gross Margin | 2.4% | (1.0)% | | Net Loss | $(12.7)M | $(34.9)M | | Diluted EPS | $(0.47) | $(1.30) | Financial Performance Comparison (Nine Months Ended March 31, in millions) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Consolidated Revenue | $589.2M | $507.1M | | Consolidated Gross Profit (Loss) | $16.1M | $(2.1)M | | Consolidated Gross Margin | 2.7% | (0.4)% | | Net Loss | $(52.0)M | $(77.4)M | | Diluted EPS | $(1.93) | $(2.90) | Non-GAAP Financial Measures The company presents non-GAAP measures, Adjusted Net Loss and Adjusted EBITDA, to provide insights into core profitability, with Adjusted Net Loss at $8.9 million for Q3 FY2023 Reconciliation of Net Loss to Adjusted Net Loss (In thousands) | | Three Months Ended Mar 31, 2023 | Nine Months Ended Mar 31, 2023 | | :--- | :--- | :--- | | Net loss, as reported | $(12,686) | $(52,025) | | Goodwill impairment | — | 12,316 | | Restructuring costs | 316 | 2,881 | | Tax impact of adjustments | (81) | (3,912) | | Deferred tax asset valuation allowance | 3,583 | 13,347 | | Adjusted net loss | $(8,868) | $(27,393) | Reconciliation of Net Loss to Adjusted EBITDA (In thousands) | | Three Months Ended Mar 31, 2023 | Nine Months Ended Mar 31, 2023 | | :--- | :--- | :--- | | Net loss | $(12,686) | $(52,025) | | Goodwill impairment | — | 12,316 | | Restructuring costs | 316 | 2,881 | | Stock-based compensation | 1,407 | 5,154 | | Interest expense | 268 | 1,556 | | Provision (benefit) for income taxes | (363) | (363) | | Depreciation and amortization | 3,322 | 10,499 | | Adjusted EBITDA | $(7,736) | $(19,982) | Backlog Backlog increased by 12.4% to $832.4 million in Q3 FY2023, driven by $308.7 million in project awards, resulting in a 1.7 book-to-bill ratio Backlog by Segment as of March 31, 2023 (In thousands) | Segment | Backlog Dec 31, 2022 | Project Awards Q3'23 | Revenue Q3'23 | Backlog Mar 31, 2023 | | :--- | :--- | :--- | :--- | :--- | | Utility and Power Infrastructure | $147,305 | $25,598 | $(35,024) | $137,879 | | Process and Industrial Facilities | $290,005 | $217,491 | $(99,706) | $401,099 | | Storage and Terminal Solutions | $303,159 | $65,657 | $(52,165) | $293,379 | | Total | $740,469 | $308,746 | $(186,895) | $832,357 | - The book-to-bill ratio for the nine months ended March 31, 2023, was 1.5, with total project awards of $862.0 million against revenue of $589.2 million[139] Liquidity and Capital Resources Total liquidity was $92.4 million as of March 31, 2023, with $2.4 million cash provided by operating activities for the nine-month period, a significant improvement Liquidity Summary (In thousands) | Component | March 31, 2023 | | :--- | :--- | | Cash and cash equivalents | $48,204 | | Availability under ABL Facility | $44,200 | | Total Liquidity | $92,404 | - Net cash provided by operating activities for the nine months ended March 31, 2023, was $2.4 million, driven by non-cash charges offsetting net loss and positive working capital changes[159][160] - The company's ABL Facility matures on September 9, 2026, with $15.0 million in outstanding borrowings as of March 31, 2023, and compliance with all covenants[156][158] Critical Accounting Policies This section reiterates critical accounting policies, including Revenue Recognition and Goodwill, with no material changes from the fiscal 2022 Annual Report - Revenue on fixed-price contracts is recognized over time using the percentage-of-completion method based on costs incurred relative to total estimated costs[174] - Estimating total cost at completion for fixed-price contracts is complex, requiring significant judgment, with provisions made for anticipated losses[177] - Goodwill impairment testing compares a reporting unit's fair value (via discounted cash flow and market multiple analyses) with its carrying value, requiring significant judgment[182][183] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes in market risk were reported compared to the Annual Report on Form 10-K for the fiscal year ended June 30, 2022 - No material changes in market risk have occurred since the Form 10-K for the fiscal year ended June 30, 2022[188] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal controls over financial reporting - Disclosure controls and procedures were evaluated by management, including the CEO and CFO, and deemed effective as of March 31, 2023[190] - No material changes to internal controls over financial reporting occurred during the quarter ended March 31, 2023[191] PART II OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings, none of which are expected to materially affect its financial condition or operations - The company is involved in legal proceedings but anticipates no material impact on its business, financial condition, or liquidity[194] Item 1A. Risk Factors No material changes to the company's risk factors were reported compared to the Annual Report on Form 10-K for the fiscal year ended June 30, 2022 - No material changes in Risk Factors were reported compared to the Form 10-K for the fiscal year ended June 30, 2022[195] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company made no common stock purchases in Q3 FY2023, has never paid cash dividends, and is restricted to stock dividends by its ABL Facility - No purchases of the company's common stock were made during the third quarter of fiscal year 2023[196] - The company has never paid cash dividends and its ABL Facility restricts it to stock dividends only[197] Item 6. Exhibits This section lists exhibits filed with the Quarterly Report on Form 10-Q, including CEO/CFO certifications, Mine Safety Disclosures, and XBRL data files - The report includes required exhibits such as CEO/CFO certifications under Sarbanes-Oxley, Mine Safety Disclosures, and XBRL interactive data files[200][202]