Matrix Service pany(MTRX) - 2021 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents Matrix Service Company's unaudited condensed consolidated financial statements, including income, balance sheet, cash flow, and equity statements, with accompanying notes Condensed Consolidated Statements of Income The company reported significant revenue decreases and net losses for the three and six months ended December 31, 2020, compared to the prior year Condensed Consolidated Statements of Income (In thousands, except per share data) | Metric | Three Months Ended Dec 31, 2020 | Three Months Ended Dec 31, 2019 | Six Months Ended Dec 31, 2020 | Six Months Ended Dec 31, 2019 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $167,468 | $318,677 | $350,239 | $656,774 | | Gross Profit | $15,313 | $30,001 | $29,663 | $62,466 | | Operating Loss | $(6,456) | $(31,679) | $(9,914) | $(22,905) | | Net Loss | $(4,591) | $(28,008) | $(7,628) | $(21,857) | | Diluted Loss Per Share | $(0.17) | $(1.04) | $(0.29) | $(0.81) | Condensed Consolidated Balance Sheets As of December 31, 2020, total assets decreased to $479.9 million, while total liabilities also decreased to $175.6 million, with stockholders' equity remaining stable Balance Sheet Summary (In thousands) | Metric | December 31, 2020 | June 30, 2020 | | :--- | :--- | :--- | | Total Current Assets | $304,767 | $335,160 | | Total Assets | $479,910 | $517,310 | | Total Current Liabilities | $150,127 | $175,947 | | Total Liabilities | $175,621 | $209,421 | | Total Stockholders' Equity | $304,289 | $307,889 | - Cash and cash equivalents decreased to $93.5 million as of December 31, 2020, from $100.0 million as of June 30, 2020[16] - Borrowings under the senior secured revolving credit facility were fully paid off, down from $9.2 million at June 30, 2020[19] Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities significantly decreased to $5.8 million for the six months ended December 31, 2020, leading to a $6.6 million decrease in cash and cash equivalents Cash Flow Summary for Six Months Ended (In thousands) | Cash Flow Activity | December 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $5,824 | $38,625 | | Net Cash used by Investing Activities | $(1,434) | $(14,115) | | Net Cash used by Financing Activities | $(11,845) | $(3,978) | | (Decrease) Increase in Cash | $(6,555) | $20,780 | | Cash and Cash Equivalents, End of Period | $93,481 | $110,495 | Notes to Condensed Consolidated Financial Statements The notes detail significant accounting policies, including a new credit loss standard, segment realignment, revenue recognition, debt covenants, and business improvement plan costs - Effective July 1, 2020, the company realigned its financial reporting into three new segments: Utility and Power Infrastructure, Process and Industrial Facilities, and Storage and Terminal Solutions[40][79] - The company had $418.0 million of remaining performance obligations as of December 31, 2020, with $315.3 million expected to be recognized as revenue within the next twelve months[43] - On November 2, 2020, the company entered into a new three-year, $200.0 million senior secured revolving credit facility, replacing its prior agreement[60][61] - The company incurred $4.7 million in restructuring costs during the first half of fiscal 2021 as part of a business improvement plan initiated in fiscal 2020, with total costs since inception at $18.7 million[86][89] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the COVID-19 pandemic's impact, leading to reduced revenue, decreased backlog, and restructuring costs, while maintaining a strong liquidity position Results of Operations For the six months ended December 31, 2020, consolidated revenue decreased by 46.7%, and gross profit fell significantly, primarily due to project completions and industry exits, despite a net loss improvement Consolidated Performance (Six Months Ended Dec 31) | Metric | 2020 (in millions) | 2019 (in millions) | Change | | :--- | :--- | :--- | :--- | | Revenue | $350.2 | $656.8 | -46.7% | | Gross Profit | $29.7 | $62.5 | -52.5% | | SG&A Expenses | $34.9 | $46.9 | -25.6% | | Net Loss | $(7.6) | $(21.9) | N/A | | Adjusted Net Loss/Income | $(4.1) | $11.4 | N/A | - The company implemented cost reductions resulting in an annual reduction in construction overhead and SG&A costs of approximately $60 million[113] - The Storage and Terminal Solutions segment gross margin was negatively impacted by a $7.7 million charge on a large crude oil storage terminal project, reducing the segment's gross margin by 7.3% to 4.0% for the six-month period[138] Backlog The company's backlog decreased to $622.8 million by December 31, 2020, reflecting a book-to-bill ratio of 0.6 due to pandemic-driven project deferrals and conservative customer spending Backlog Changes (Six Months Ended Dec 31, 2020, In thousands) | Metric | Amount | | :--- | :--- | | Backlog as of June 30, 2020 | $758,465 | | Project Awards | $214,547 | | Revenue Recognized | $(350,239) | | Backlog as of December 31, 2020 | $622,773 | - The book-to-bill ratio for the six months ended December 31, 2020 was 0.6, indicating that more revenue was recognized than new work was awarded[142] - Market conditions remain challenging, with customers delaying discretionary spending, though the company sees strong opportunity pipelines in specific sectors like LNG and clean energy infrastructure[144][145][146] Liquidity and Capital Resources As of December 31, 2020, the company maintained strong liquidity of $126.9 million, comprising cash and available credit, and repaid all outstanding borrowings on its credit facility Liquidity Position (As of Dec 31, 2020, In millions) | Component | Amount | | :--- | :--- | | Cash and Cash Equivalents | $93.5 | | Availability under Credit Facility | $33.4 | | Total Available Liquidity | $126.9 | - The company entered into a new Fifth Amended and Restated Credit Agreement on November 2, 2020, providing a three-year, $200.0 million senior secured revolving credit facility[162][163] - The company is managing liquidity by controlling costs, eliminating non-critical capital expenditures, and maintaining little to no debt[157] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company states that there have been no material changes in the market risks it faces since those reported in its Annual Report on Form 10-K for the fiscal year ended June 30, 2020 - No material changes in market risk were reported compared to the fiscal year-end 2020 Form 10-K[177] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2020, with remote work arrangements not materially affecting internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2020[181] - The company assessed the impact of its remote work arrangement due to COVID-19 and determined that its internal controls over financial reporting remain effective[180] PART II OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings typical for its business, none of which are expected to have a material effect on its financial condition or operations - The company does not expect any current legal proceedings to have a material impact on its financial position or operations[185] Item 1A. Risk Factors There were no material changes to the company's risk factors from those disclosed in its Annual Report on Form 10-K for the fiscal year ended June 30, 2020 - No material changes in Risk Factors were reported since the last Annual Report on Form 10-K[186] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the second quarter of fiscal 2021, the company did not repurchase shares, withheld shares for tax obligations, and has never paid cash dividends due to credit agreement limitations - No shares were repurchased under the stock buyback program during the quarter ended December 31, 2020[188] - The company has never paid a cash dividend and is limited in its ability to do so by its credit agreement[190] Item 4. Mine Safety Disclosures As a contractor at mine sites, the company is considered a mine "operator" under the Mine Act and provides required safety information in Exhibit 95 - The company is subject to Mine Safety Disclosures due to its role as a contractor at mine sites, with relevant information included in Exhibit 95[191][192] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the new credit agreement, CEO and CFO certifications, Mine Safety Disclosures, and XBRL data files - Key exhibits filed include the new credit agreement (Exhibit 10.1), Sarbanes-Oxley certifications (Exhibits 31.1, 31.2, 32.1, 32.2), and Mine Safety Disclosure (Exhibit 95)[195]