GlobeNewswire Inc | Sep 2, 2020 04:05PM EDT

September 02, 2020

-- 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 June30, 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 Companys 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 Companys 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 Companys 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 Companys 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 1-888-660-6127Dial in - Toll 1-973-890-8355Audience 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 Companys operations, economic performance and managements 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 Companys 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. CavanahVice President and CFOT: 918-838-8822Email: kcavanah@matrixservicecompany.com

Kellie SmytheSenior Director, Investor RelationsT: 918-359-8267Email: ksmythe@matrixservicecompany.com

Matrix Service CompanyConsolidated Statements of Income(In thousands, except per share data)

Three Months Ended Twelve Months Ended June 30, June 30, June 30, June 30, 2020 2019 2020 2019Revenue $ 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, generaland administrative 19,702 26,349 86,276 94,021 expensesGoodwill and otherintangible asset ? ? 38,515 ? impairmentRestructuring costs 7,451 ? 14,010 ? Operating income (7,920 ) 17,389 (36,625 ) 37,930 (loss)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 (7,587 ) 17,380 (36,644 ) 38,412 expenseProvision (benefit)for federal, state (1,865 ) 4,568 (3,570 ) 10,430 and foreign incometaxesNet income (loss) $ (5,722 ) $ 12,812 $ (33,074 ) $ 27,982 Basic earnings(loss) per common $ (0.22 ) $ 0.48 $ (1.24 ) $ 1.04 shareDiluted earnings(loss) per common $ (0.22 ) $ 0.47 $ (1.24 ) $ 1.01 shareWeighted averagecommon shares outstanding:Basic 26,140 26,807 26,621 26,891 Diluted 26,140 27,521 26,621 27,587

Matrix Service CompanyConsolidated Balance Sheets(In thousands)

June 30, June 30, 2020 2019Assets Current assets: Cash and cash equivalents $ 100,036 $ 89,715 Accounts receivable, less allowances (2020 - $905; 160,671 218,432 2019 - $923)Costs and estimated earnings in excess of billings on 59,548 96,083 uncompleted contractsInventories 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 CompanyConsolidated Balance Sheets (continued)(In thousands, except share data)

June 30, June 30, 2020 2019Liabilities and stockholders? equity Current liabilities: Accounts payable $ 73,094 $ 114,647 Billings on uncompleted contracts in excess of 63,889 105,626 costs and estimated earningsAccrued 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 9,208 5,347 facilityOther liabilities 4,208 293 Total liabilities 209,421 281,437 Commitments and contingencies Stockholders? equity: Common stock?$.01 par value; 60,000,000 sharesauthorized; 27,888,217 shares issued as of June30,2020 and June30, 2019; 26,141,528 and 26,807,203 279 279 shares outstanding as of June 30, 2020 and June 30,2019Additional 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 and1,081,014 shares as of June30, 2020 and June30, (29,385 ) (17,759 )2019Total stockholders' equity 307,889 351,957 Total liabilities and stockholders? equity $ 517,310 $ 633,394

Results of Operations(In thousands)

Electrical Oil Gas & Storage Industrial Total Infrastructure Chemical SolutionsThree MonthsEnded June 30, 2020Gross revenue $ 22,917 $ 35,583 $ 123,193 $ 15,231 $ 196,924 Less:inter-segment ? 468 576 43 1,087 revenueConsolidated 22,917 35,115 122,617 15,188 195,837 revenueGross profit 919 5,044 13,094 176 19,233 Restructuring 1,841 2,441 296 2,873 7,451 costsOperating $ (2,737 ) $ (1,571 ) $ 2,476 $ (6,088 ) $ (7,920 )income (loss) Three MonthsEnded June 30, 2019Gross revenue $ 53,874 $ 75,568 $ 149,543 $ 120,239 $ 399,224 Less:inter-segment ? 23 487 ? 510 revenueConsolidated 53,874 75,545 149,056 120,239 398,714 revenueGross profit 2,315 10,469 20,736 10,218 43,738 Intangibleassetimpairments ? ? ? ? ? andrestructuringcostsOperating $ (309 ) $ 4,089 $ 8,726 $ 4,883 $ 17,389 income (loss) Twelve MonthsEnded June 30, 2020Gross revenue $ 112,890 $ 203,404 $ 562,439 $ 228,827 $ 1,107,560 Less:inter-segment ? 2,454 3,240 928 6,622 revenueConsolidated 112,890 200,950 559,199 227,899 1,100,938 revenueGross profit (1,105 ) 15,822 71,934 15,525 102,176 (loss)Intangibleassetimpairments 27,855 3,850 1,296 19,524 52,525 andrestructuringcostsOperating $ (36,503 ) $ (7,328 ) $ 27,306 $ (20,100 ) $ (36,625 )income (loss) Twelve MonthsEnded June 30, 2019Gross revenue $ 217,417 $ 322,065 $ 524,330 $ 357,464 $ 1,421,276 Less:inter-segment ? 2,198 2,398 ? 4,596 revenueConsolidated 217,417 319,867 521,932 357,464 1,416,680 revenueGross profit 15,470 35,987 56,011 24,483 131,951 Intangibleassetimpairments ? ? ? ? ? andrestructuringcostsOperating $ 3,668 $ 12,984 $ 14,097 $ 7,181 $ 37,930 income

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 June30, 2020

The following table provides a summary of changes in our backlog for the three months ended June30, 2020:

Electrical Oil Gas & Storage Industrial Total Infrastructure Chemical Solutions (In thousands)Backlog asof March 31, $ 42,099 $ 132,278 $ 520,483 $ 32,196 $ 727,056 2020Project 15,355 23,792 178,838 9,261 227,246 awardsRevenue (22,917 ) (35,115 ) (122,617 ) (15,188 ) (195,837 )recognizedBacklog asof June 30, $ 34,537 $ 120,955 $ 576,704 $ 26,269 $ 758,465 2020Book-to-bill 0.7 0.7 1.5 0.6 1.2 ratio^(1)



(1) Calculated by dividing project awards by revenue recognized.

Twelve Months Ended June30, 2020

The following table provides a summary of changes in our backlog for the twelve months ended June30, 2020:

Electrical Oil Gas & Storage Industrial Total Infrastructure Chemical Solutions (In thousands)Backlog as of $ 73,883 $ 134,563 $ 641,295 $ 248,608 $ 1,098,349 June30, 2019Project 73,544 194,013 494,608 97,364 859,529 awardsProjectcancellations ? (6,671 ) ? (91,804 ) (98,475 )^(1)Revenue (112,890 ) (200,950 ) (559,199 ) (227,899 ) (1,100,938 )recognizedBacklog as of $ 34,537 $ 120,955 $ 576,704 $ 26,269 $ 758,465 June 30, 2020Book-to-bill 0.7 1.0 0.9 0.4 0.8 ratio^(2)



(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 Fiscal Year Ended June June 30, 2020 30, 2020 Income Earnings Earnings Amount Tax Net (Loss) Net (Loss) of Effect of Income Per Income Per Charge Charge (Loss) Diluted (Loss) Diluted Share ShareNet loss percommon share, $ (5,722 ) $ (0.22 ) $ (33,074 ) $ (1.24 )as reportedRestructuring $ 14,010 $ (3,369 ) 5,544 0.21 10,641 0.39 costs incurredElectricalInfrastructuresegment 24,900 (4,889 ) ? ? 20,011 0.74 goodwillimpairmentIndustrialsegmentgoodwill andother 13,615 (2,803 ) ? ? 10,812 0.40 intangibleassetimpairmentValuationallowanceplaced on a 2,417 ? ? ? 2,417 0.09 deferred taxassetAdjustment fordilutive effectof using basic ? ? ? 0.02 shares for netlossAdjusted netincome (loss)and diluted $ (178 ) $ (0.01 ) $ 10,807 $ 0.40 earnings (loss)per commonshareWeightedaverage commonshares outstanding -diluted:As reported 26,140 26,621 Previouslyanti-dilutive ? 490 common sharesAdjustedweightedaverage common 26,140 27,111 sharesoutstanding -diluted

(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.