Matrix Service pany(MTRX) - 2023 Q1 - Quarterly Report

Part I: Financial Information Item 1. Financial Statements (Unaudited) Matrix Service Company reported Q1 FY2023 revenue of $208.4 million, a $13.0 million gross profit, and a $6.5 million net loss, with negative operating cash flow due to working capital needs Notes to Condensed Consolidated Financial Statements Notes detail $438.6 million in performance obligations, revenue disaggregation, ABL facility amendment, 0.0% effective tax rate, and a $17.0 million litigation receivable - As of September 30, 2022, the company had $438.6 million of remaining performance obligations, with $367.2 million expected to be recognized as revenue within the next twelve months[36] Revenue Disaggregation (Q1 FY2023) | Category | Amount (in thousands) | | :--- | :--- | | By Geography | | | United States | $176,180 | | Canada | $24,925 | | By Contract Type | | | Fixed-price contracts | $109,473 | | Time and materials, etc. | $98,958 | - The company's ABL Facility was amended in October 2022, reducing the maximum loan amount to $90.0 million As of September 30, 2022, the borrowing base was $79.0 million, with $15.0 million outstanding and $42.3 million in availability[56][58] - The effective tax rate for Q1 FY2023 was 0.0% due to a $1.4 million valuation allowance placed on deferred tax assets generated during the quarter[61][63] - The company is in litigation to collect a $17.0 million accounts receivable from an iron and steel customer, with unpriced change orders and claims totaling $13.7 million included in assets[69][70] Segment Gross Profit (Loss) (in thousands) | Segment | Q1 FY2023 | Q1 FY2022 | | :--- | :--- | :--- | | Utility and Power Infrastructure | $1,714 | $(6,107) | | Process and Industrial Facilities | $4,330 | $2,871 | | Storage and Terminal Solutions | $7,564 | $413 | Condensed Consolidated Statements of Income (Unaudited) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Revenue | $208,431 | $168,093 | | Gross Profit (Loss) | $13,008 | $(3,508) | | Operating Loss | $(5,090) | $(20,742) | | Net Loss | $(6,512) | $(17,538) | | Diluted Loss Per Share | $(0.24) | $(0.66) | Condensed Consolidated Balance Sheet Highlights (Unaudited) | Metric | September 30, 2022 | June 30, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $14,342 | $52,371 | | Total Current Assets | $260,604 | $287,412 | | Total Assets | $410,912 | $440,793 | | Total Current Liabilities | $154,598 | $177,785 | | Total Liabilities | $189,661 | $213,087 | | Total Stockholders' Equity | $221,251 | $227,706 | Condensed Consolidated Statements of Cash Flows (Unaudited) | Metric | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash used by operating activities | $(35,229) | $(19,153) | | Net cash used by investing activities | $(1,574) | $(116) | | Net cash used by financing activities | $(245) | $(1,817) | | Decrease in cash, cash equivalents and restricted cash | $(38,029) | $(21,600) | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management reports improved bidding, awards, and revenue, with Q1 FY2023 consolidated revenue up 24% to $208.4 million, backlog at $615.7 million, and adequate liquidity of $56.6 million Results of Operations Consolidated revenue increased to $208.4 million, gross profit improved to $13.0 million (6.2% margin), and net loss narrowed to $6.5 million, with Adjusted EBITDA turning positive at $0.8 million - Bidding activity, project awards, and revenue volumes are improving, leading to better operating results and gross margins as lower-margin projects are completed[89] Reconciliation of Net Loss to Adjusted Net Loss (Non-GAAP) | Description (in thousands) | Q1 FY2023 | Q1 FY2022 | | :--- | :--- | :--- | | Net loss, as reported | $(6,512) | $(17,538) | | Restructuring costs | 1,287 | 605 | | Deferred tax asset valuation allowance | 1,394 | — | | Adjusted net loss | $(4,162) | $(15,961) | Reconciliation of Net Loss to Adjusted EBITDA (Non-GAAP) | Description (in thousands) | Q1 FY2023 | Q1 FY2022 | | :--- | :--- | :--- | | Net loss | $(6,512) | $(17,538) | | Restructuring costs | 1,287 | 605 | | Stock-based compensation | 2,055 | 1,869 | | Interest expense | 372 | 1,999 | | Benefit for income taxes | — | (5,265) | | Depreciation and amortization | 3,642 | 4,052 | | Adjusted EBITDA | $844 | $(14,278) | - Process and Industrial Facilities revenue increased 97.3% to $86.6 million due to higher volumes of refinery maintenance, turnaround work, and capital projects[106] - Storage and Terminal Solutions revenue increased to $76.9 million from $67.0 million, driven by higher volumes of LNG and specialty vessel tank and terminal capital work[109] Backlog Total backlog increased 4.4% to $615.7 million with a 1.1 book-to-bill ratio, driven by a 28.2% increase in Storage and Terminal Solutions backlog Backlog by Segment (in thousands) | Segment | Backlog as of June 30, 2022 | Project Awards | Revenue Recognized | Backlog as of Sep 30, 2022 | Book-to-Bill Ratio | | :--- | :--- | :--- | :--- | :--- | :--- | | Utility and Power Infrastructure | $102,059 | $42,618 | $(44,870) | $99,807 | 0.9 | | Process and Industrial Facilities | $292,287 | $59,982 | $(86,628) | $265,641 | 0.7 | | Storage and Terminal Solutions | $195,114 | $132,028 | $(76,933) | $250,209 | 1.7 | | Total | $589,460 | $234,628 | $(208,431) | $615,657 | 1.1 | - The Storage and Terminal Solutions segment backlog increased by 28.2%, driven by an LNTP on a significant ethane/ethylene tank EPC project, with LNG and hydrogen projects seen as key future growth drivers[118][119] - The Process and Industrial Facilities segment sees strong demand for refinery maintenance, thermal vacuum chambers, mining and minerals, and chemicals, with increasing opportunities in midstream gas work[117] Liquidity and Capital Resources Total liquidity was $56.6 million, decreasing by $38.2 million due to $35.2 million used in operating activities for working capital, with the ABL facility amended to $90 million Liquidity Summary (in thousands) | Component | September 30, 2022 | | :--- | :--- | | Unrestricted cash and cash equivalents | $14,342 | | Availability under ABL Facility | $42,300 | | Total Liquidity | $56,616 | - The primary driver for the decrease in liquidity was a $35.2 million use of cash in operating activities, largely due to an investment in working capital as revenue volumes increased[127][135] - The company has never paid cash dividends and is limited to stock dividends by its ABL Facility, with no shares repurchased under the buyback program during the quarter[140][141] Critical Accounting Policies Key accounting policies require significant judgment, particularly for revenue recognition (percentage-of-completion, variable consideration) and goodwill impairment testing (discounted cash flow analysis) - Revenue on fixed-price contracts is recognized over time using the percentage-of-completion method, requiring significant judgment in estimating total costs at completion[151][154] - The company includes estimated variable consideration in the contract price only when it is probable that a significant revenue reversal will not occur[149][156] - Goodwill is tested for impairment annually by comparing the fair value of a reporting unit to its carrying value, involving significant judgments and assumptions in the income and market approaches[159][160] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes in market risks were reported compared to the fiscal year 2022 Annual Report on Form 10-K - There have been no material changes in market risk from those disclosed in the fiscal 2022 Annual Report on Form 10-K[163] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal controls over financial reporting during the quarter - Based on an evaluation as of September 30, 2022, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[166] - No changes in internal controls over financial reporting occurred during the quarter that materially affected or are reasonably likely to materially affect such controls[167] Part II: Other Information Item 1. Legal Proceedings The company is involved in various legal proceedings, none of which are expected to have a material effect on its financial condition or operations - The company is involved in a number of legal proceedings but does not expect any to have a material impact on its financial condition or operations[170] Item 1A. Risk Factors No material changes in Risk Factors were reported compared to the fiscal year 2022 Form 10-K - No material changes in Risk Factors were reported compared to the fiscal year 2022 Form 10-K[171] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No shares were repurchased under the Stock Buyback Program, but 52,864 shares were withheld at $5.86 per share for employee tax obligations related to vested deferred shares - No shares were repurchased under the Stock Buyback Program during the quarter[173] - 52,864 shares were withheld in August 2022 to satisfy employee tax obligations upon the vesting of deferred shares[173] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - None[175] Item 4. Mine Safety Disclosures As a mine 'operator' contractor, the company includes required mine safety violation disclosures in Exhibit 95 of the report - The company is considered a mine "operator" due to its work as a contractor at mine sites, with required safety violation disclosures provided in Exhibit 95[176][177] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including the Credit Agreement amendment, CEO/CFO certifications, and XBRL data files - Key exhibits filed include the First Amendment and Waiver to the Credit Agreement (Exhibit 10.1), Sarbanes-Oxley certifications (Exhibits 31.1, 31.2, 32.1, 32.2), and Mine Safety Disclosure (Exhibit 95)[179]