Matrix Service pany(MTRX) - 2021 Q4 - Annual Report

Part I Business Matrix Service Company provides engineering, fabrication, construction, and maintenance services, realigning into three reportable segments as of July 1, 2020 - The company provides engineering, fabrication, infrastructure, construction, and maintenance services to various markets including oil, natural gas, power, and industrial sectors[18] - Effective July 1, 2020, the company restructured its financial reporting into three new segments: Utility and Power Infrastructure, Process and Industrial Facilities, and Storage and Terminal Solutions[24] FY 2021 Backlog Summary (in thousands) | | Utility and Power Infrastructure | Process and Industrial Facilities | Storage and Terminal Solutions | Total | | :--- | :--- | :--- | :--- | :--- | | Backlog as of June 30, 2020 | $272,816 | $145,725 | $339,924 | $758,465 | | Project awards | $107,279 | $188,969 | $155,465 | $451,713 | | Revenue recognized | ($210,052) | ($199,917) | ($263,429) | ($673,398) | | Backlog as of June 30, 2021 | $170,043 | $134,777 | $157,741 | $462,561 | | Book-to-bill ratio | 0.5 | 0.9 | 0.6 | 0.7 | - The company expects to recognize approximately 85% of its total backlog as of June 30, 2021, as revenue within fiscal 2022[37] - In fiscal 2021, the company achieved a record Total Recordable Incident Rate (TRIR) of 0.28, indicating world-class safety performance[50] - As of June 30, 2021, the company had 2,717 employees worldwide, with 48% of the overall workforce represented by women and minorities[47] Risk Factors The company faces significant risks including the ongoing impact of the COVID-19 pandemic, financial restrictions, operational challenges, and cybersecurity threats - The COVID-19 pandemic has caused unpredictable reductions in demand, project delays, and disruptions to labor and global supply chains, leading to higher material prices and increased risk in bidding and executing work profitably[69][70][71] - The company's Credit Agreement imposes restrictions that may limit business alternatives, such as acquisitions and equity repurchases, and requires compliance with financial covenants[75] - Demand for the company's services is cyclical and vulnerable to capital spending levels of customers in the oil, natural gas, petrochemical, industrial, and power industries, which are influenced by commodity prices and economic conditions[84][85] - A significant portion of work is performed under fixed-price contracts, exposing the company to the risk of cost overruns if estimates for project scope, materials, and labor prove inaccurate[90][91] - Backlog is not a reliable indicator of future earnings, as it is subject to unexpected fluctuations, adjustments, and cancellations; projects may be delayed, or their scope may be adjusted[97] - The company faces cybersecurity risks, including attacks on its operational systems; while prior incidents have not been material, future threats could harm the business and reputation[102][103] - The use of percentage-of-completion accounting for fixed-price contracts could result in a reduction or elimination of previously reported profits if cost estimates change[107][109] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - There are no unresolved staff comments[137] Properties The company's principal properties include its leased corporate headquarters in Tulsa, Oklahoma, and various owned and leased facilities globally - The company's corporate headquarters are located in a leased facility in Tulsa, Oklahoma[138] - Matrix Service Company operates from various owned and leased properties in the United States (Washington, Pennsylvania, Oklahoma, Ohio, Texas, California, Michigan, Arizona), Canada (Ontario, Alberta), South Korea, and Australia[138] 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 a number of legal proceedings but does not expect them to have a material effect on its financial condition or operations[140] Mine Safety Disclosures Required disclosures regarding mine safety violations are included in Exhibit 95 of the Form 10-K - Information regarding mine safety violations as required by the Dodd-Frank Act is included in Exhibit 95 to this Annual Report[142] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NASDAQ under 'MTRX', with no history of cash dividends and share repurchases limited by its Credit Agreement - The company's common stock is traded on the NASDAQ Global Select Market under the symbol "MTRX"[145] - The company has never paid cash dividends and its Credit Agreement limits dividends to stock dividends only[146] - Share repurchases are limited to $2.5 million per fiscal year by the Credit Agreement; as of June 30, 2021, 1,349,037 shares remained available for purchase under the Stock Buyback Program, with no repurchases made in the fourth quarter of fiscal 2021[147] Selected Financial Data Selected financial data for the past five fiscal years shows significant declines in revenue, gross margin, and backlog, resulting in net losses for fiscal years 2020 and 2021 Selected Financial Data (In thousands, except percentages and per share data) | | FY 2021 | FY 2020 | FY 2019 | FY 2018 | FY 2017 | | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | $673,398 | $1,100,938 | $1,416,680 | $1,091,553 | $1,197,509 | | Gross profit | $32,765 | $102,176 | $131,951 | $91,936 | $81,003 | | Gross margin % | 4.9% | 9.3% | 9.3% | 8.4% | 6.8% | | Operating income (loss) | ($43,747) | ($36,625) | $37,930 | ($10,479) | $4,859 | | Net income (loss) | ($31,224) | ($33,074) | $27,982 | ($11,480) | ($183) | | Earnings (loss) per share-diluted | ($1.18) | ($1.24) | $1.01 | ($0.43) | ($0.01) | | Total assets | $467,556 | $517,310 | $633,394 | $558,033 | $586,030 | | Backlog | $462,561 | $758,465 | $1,098,349 | $1,218,596 | $682,273 | Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 2021 saw consolidated revenue decline to $673.4 million and a net loss of $31.2 million, driven by pandemic impacts and project issues, with liquidity maintained through cash and a new ABL facility Results of Operations Fiscal 2021 consolidated revenue decreased to $673.4 million, with gross profit falling to $32.8 million and a net loss of $31.2 million, primarily due to segment declines and overhead under-recovery Consolidated Revenue and Gross Profit by Segment (FY2021 vs. FY2020, in thousands) | Segment | FY2021 Revenue | FY2020 Revenue | Change | FY2021 Gross Profit | FY2020 Gross Profit | Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Utility and Power Infrastructure | $210,052 | $212,001 | ($1,949) | $1,506 | $7,081 | ($5,575) | | Process and Industrial Facilities | $199,917 | $421,871 | ($221,954) | $17,642 | $36,349 | ($18,707) | | Storage and Terminal Solutions | $263,429 | $467,066 | ($203,637) | $13,617 | $61,413 | ($47,796) | | Total | $673,398 | $1,100,938 | ($427,540) | $32,765 | $102,176 | ($69,411) | - Consolidated SG&A expenses decreased to $69.8 million in fiscal 2021 from $86.3 million in fiscal 2020, primarily due to implemented cost reductions[176] - The company incurred restructuring costs of $6.8 million in fiscal 2021 and $14.0 million in fiscal 2020 to reduce its cost structure[177] - The effective tax rate was 27.8% in fiscal 2021, benefiting from a $5.2 million tax benefit under the CARES Act allowing for a net operating loss carryback to a period with a higher statutory rate[179] Liquidity and Capital Resources Primary liquidity sources include $83.9 million in cash and a new $100.0 million ABL facility, with fiscal 2021 showing net cash used in operating, investing, and financing activities - Primary sources of liquidity as of June 30, 2021, were cash and cash equivalents of $83.9 million and cash flows from operations[203] - On September 9, 2021, the company entered into a new asset-backed credit agreement (ABL Facility) providing for borrowings up to $100.0 million, which matures on September 9, 2026[211] Cash Flow Summary for FY 2021 (in thousands) | Cash Flow Activity | Amount | | :--- | :--- | | Net cash used by operating activities | ($2,971) | | Net cash used by investing activities | ($2,264) | | Net cash used by financing activities | ($12,324) | Off-Balance Sheet Arrangements as of June 30, 2021 (in thousands) | Arrangement | Amount | | :--- | :--- | | Letters of credit | $41,314 | | Surety bonds | $96,824 | | Total | $138,138 | Critical Accounting Policies Critical accounting policies involve significant judgment in revenue recognition for fixed-price contracts and annual goodwill impairment testing, with four reporting units at higher risk of future impairment - Revenue for fixed-price contracts is recognized over time using the percentage-of-completion method, based on costs incurred to date compared to total estimated costs at completion; this process requires significant judgment[230][233] - Goodwill is tested for impairment annually by comparing the fair value of a reporting unit to its carrying value; fair value is determined using income and market approaches, which involve significant assumptions[239][240] - The annual goodwill impairment test as of May 31, 2021, resulted in no impairment; however, four reporting units with a combined $37.7 million of goodwill were identified as having a higher risk of future impairment[241] Goodwill Headroom Sensitivity Analysis for High-Risk Reporting Units | Reporting Unit | Goodwill as of June 30, 2021 (in thousands) | Baseline Headroom | Headroom if Gross Margin Declines by 100 Basis Points | Headroom if Discount Rate Increases by 100 Basis Points | | :--- | :--- | :--- | :--- | :--- | | Reporting Unit 1 | $16,821 | 40% | 23% | 30% | | Reporting Unit 2 | $14,233 | 6% | -5% | -4% | | Reporting Unit 3 | $3,946 | 12% | -52% | -6% | | Reporting Unit 4 | $2,659 | 24% | 0% | 15% | Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from foreign currency fluctuations and commodity price changes, with mitigation strategies in place but heightened risk from supply chain disruptions - The company has foreign currency risk from its operations in Canada and South Korea, but does not currently use derivative instruments to hedge this exposure as it has not been historically material[247][249] - The company has indirect exposure to commodity price risk for materials such as steel and copper; this risk is managed through procurement strategies and contract clauses, but has been heightened by global supply chain disruptions[250][251] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for fiscal 2021, including a net loss of $31.2 million on $673.4 million revenue, with detailed notes on accounting policies and segment performance Consolidated Financial Statements Fiscal 2021 consolidated financial statements show $673.4 million revenue, a $31.2 million net loss, and total assets of $467.6 million, with cash used in operations Consolidated Statement of Income Summary (in thousands) | | FY 2021 | FY 2020 | FY 2019 | | :--- | :--- | :--- | :--- | | Revenue | $673,398 | $1,100,938 | $1,416,680 | | Gross Profit | $32,765 | $102,176 | $131,951 | | Operating Income (Loss) | ($43,747) | ($36,625) | $37,930 | | Net Income (Loss) | ($31,224) | ($33,074) | $27,982 | | Diluted EPS | ($1.18) | ($1.24) | $1.01 | Consolidated Balance Sheet Summary (in thousands) | | June 30, 2021 | June 30, 2020 | | :--- | :--- | :--- | | Total Current Assets | $291,219 | $335,160 | | Total Assets | $467,556 | $517,310 | | Total Current Liabilities | $153,402 | $175,947 | | Total Liabilities | $182,017 | $209,421 | | Total Stockholders' Equity | $285,539 | $307,889 | Consolidated Statement of Cash Flows Summary (in thousands) | | FY 2021 | FY 2020 | FY 2019 | | :--- | :--- | :--- | :--- | | Net cash provided (used) by operating activities | ($2,971) | $44,085 | $41,394 | | Net cash used by investing activities | ($2,264) | ($17,116) | ($14,448) | | Net cash used by financing activities | ($12,324) | ($16,039) | ($1,107) | | Net increase (decrease) in cash | ($16,158) | $10,321 | $25,658 | Notes to Consolidated Financial Statements Notes detail accounting policies, segment changes, goodwill impairment (none in FY2021, significant in FY2020), the new ABL facility, CARES Act tax impact, and $6.8 million in restructuring costs - In FY2020, the company recorded goodwill impairments of $24.9 million in the Utility and Power Infrastructure segment and $8.0 million in a Process and Industrial Facilities reporting unit; no goodwill impairment was recorded in FY2021[357] - The CARES Act provided a $5.2 million income tax benefit in FY2021 from the carryback of the federal net operating loss; the company also deferred $11.1 million of U.S. payroll tax as of June 30, 2021[375][376] - In FY2021, one customer accounted for 12.9% of consolidated revenue, all within the Utility and Power Infrastructure segment[26][440] - The company incurred $6.8 million in restructuring costs in fiscal 2021, primarily for severance and facility closures, as part of a business improvement plan initiated in fiscal 2020[442][446] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None reported[456] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2021, with no material changes to internal control over financial reporting - The company's CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2021[457] - No material changes were made to the company's internal control over financial reporting during the fourth quarter of fiscal 2021[459] Other Information On September 10, 2021, the Board approved the 2021 Severance Plan for Executives, replacing prior individual agreements - On September 10, 2021, the Board approved the Matrix Service Company 2021 Severance Plan for Executives, which replaces prior severance agreements for Named Executive Officers[460] Part III Directors, Executive Officers, Corporate Governance, Compensation, and Security Ownership Information for Items 10 through 14 is incorporated by reference from the company's definitive Proxy Statement for the 2021 Annual Meeting of Stockholders - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the company's 2021 Proxy Statement[463][465][466][467][468] Part IV Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed as part of the Form 10-K - This section provides a list of all financial statements, schedules, and exhibits filed with the Form 10-K[471][474] Form 10-K Summary The company indicates no Form 10-K summary is provided - None[477]